CEO Dr Thulani Vilakazi is fighting to get Ithala’s banking license. File photo
Ithala has won the sympathy of the Portfolio Committee on Finance, which has resolved to urgently engage the Minister for Finance on accelerating the entity's legal status to commercial bank as it assured that it has secured another sponsor bank by May 1st amid fears of its imminent collapse.
This is as the Exemption Notice Ithala operates under expired in December, prohibiting it from directly taking deposits and to deal with any deposits already received otherwise than under the direction of a repayment administrator appointed by the South African Reserve Bank (SARB) Prudential Authority and any repayment plan put in place.
Ithala is currently in a legal wrangle with the Prudential Authority (PA) over its utilising an ex-parte judgement that effectively compels Ithala management to operate under PA authority.
It is also in action against the Repayment Administrator for usurping all of the organisation's control of funds including the government subventions and its own collections.
Ithala’s chairperson, Mpumzi Pupuma, said, “We are negotiating with an alliance partner to process our deposits. It is risky but it is the only way that Ithala will not collapse.“
He said the entity was in a tight spot with its accounts frozen, including subvention funds from the state and the bank's own collections, which compelled its management to seek the authority of Johan Kruger, Ithala’s repayment administrator, in carrying out routine transactions.
State-owned development agency Ithala’s ambitions of being a fully fledged bank were dealt a heavy blow after a repayment administrator was appointed in January to look after its affairs, in a move that essentially begins the process of winding down its deposit-taking activities.
SARB appointed Kruger, one of South Africa’s leading investigators into Ponzi and pyramid schemes, as Ithala’s repayment administrator after a court order in December enforced the bank's curtailed status.
CEO Dr Thulani Vilakazi seethed at connotations that the Bank was a Ponzi scheme.
Vilakazi said the bank needed upgrades to not only offer ATM services, debit card transactions and electronic funds transfers as the agreement with banking firm Absa entailed, but also real time payment clearance and swift payment access.
Ithala operates 38 physical branches in Kwazulu-Natal's rural areas, raising concern amongst potential sponsors at its cash in transit costs and risks to service the network.
Vilakazi said, “We need to secure a banking licence and designation as a clearing participant in the national payment system. There is a need to look at the regulatory landscape because Ithala is being fit into a space that it does not belong in.”
Vilakazi said of its role as a rural-based development finance institution that currently had a deposit book of more than R2.9 billion, 27 475 stokvel accounts with a total value of R290 million and 1 417 co-operative accounts with a total value of R16.5 m.
The bank provides home loans on both titled and traditional land, funds the transport industry even up in Gauteng through associations and also provides pensioner loans against the accumulated sums.
The bank runs the traditional book based savings accounts with more than 40 000 members with deposits of more than R412m.
Vilakazi said an extension of the exemption notice to at least 2026 would allow the bank to build up a strong case for its commercialisation and could lift revenue by up to 10% when allowed to spread out its engaged operational model.
According to Vilakazi, Ithala's financial health was busting all ratio benchmarks, with the capital adequacy ration for the entity being at 18% against the 15% industry norm, the leverage ratio at double the 5% industry norm at 10%, liquid asset ration at 11.6% against the 7.5% benchmark and the cost to income ratio hovering at 114% against the stipulated 78%.
Portfolio Committee Chair, Joseph Maswanganyi, instructed the writing of a letter of engagement with the Minister for Finance Enoch Godongwana to unravel Ithala's legal status so it could use its full capacity.
“Ithala's existence has been a challenge. We must ask the minister what legal standing the bank is on, how it must operate without a licence to do so. We will engage the minister to intervene and by the time Parliament rises after the elections, we want a full turnaround strategy,” Maswanganyi said.
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