The KwaZulu-Natal Government of Provincial Unity (GPU) is determined to do whatever it takes to keep Ithala afloat, even if that means placing the entity in “hibernation” for two years.
In a press release issued last week, the KZN Treasury stated that the GPU was in the process of securing a banking partner to host Ithala’s depositors.
“Ithala will thus have time to restructure its business to apply for a full banking licence. This would include revision of the current enabling legislation to ensure that the entity has a national majority shareholding as required by the Financial Matters Amendment Act, 2019. It is anticipated that this would take a minimum of two years,” the KZN Treasury said.
Although often referred to as a bank, Ithala was never granted a banking licence. Its origins lie with the Ithala Development Finance Corporation Limited (IDFC), founded in 1958 and owned by the KwaZulu-Natal government.
In 2001, Ithala became a fully owned subsidiary of the IDFC after a recommendation by the South African Reserve Bank to separate the entities. Operating under a temporary Banks Act exemption, Ithala has struggled for more than a decade to secure a permanent banking licence. That exemption expired in December 2023.
Having failed to obtain a banking licence in terms of the Banks Act, Ithala was supposed to cease all its deposit-taking activities on the expiration of the exemption immediately, which it did not.
On 16 January, the Prudential Authority (PA) announced it had approached the High Court in Pietermaritzburg to liquidate Ithala, stating this move was in the best interests of its approximately 257 000 depositors.
In the founding affidavit accompanying the notice of motion, Nomfundo Tshazibana, the PA’s chief executive and deputy governor of the SARB, said Ithala is technically and legally insolvent.
Read: PA report contradicts Ithala and KZN Treasury’s solvency claims
According to the KZN Treasury, “the liquidation application becomes moot once the deposits are transferred from Ithala to a licensed bank and secured by a guarantee from the province which will be based on the loan that will have been granted to the province”.
In the same press release issued on 4 March, the KZN Treasury announced it had requested a R2.4 billion loan from National Treasury in a bid to assist Ithala’s depositors.
The loan will serve as a security guarantee to Ithala’s deposit book until the entity acquires a banking licence, the statement says.
Currently, Ithala holds deposits totalling R2.47bn.
The liquidation application meant that depositors’ accounts had to be closed to allow for the pending court processes. These depositors have not been able to withdraw or deposit funds at the entity since 16 January.
“It is important to note that this loan is not to fund the payout of depositors in terms of a possible and pending liquidation order. The province is confident that it has good prospects of success in defending the case, particularly if the loan is in hand as the deposit book will be fully secured,” the KZN Treasury said.
What makes this loan application confusing is that on January 16 – the same date that the PA filed papers in the High Court for the provisional liquidation of Ithala – National Treasury issued a statement assuring Ithala depositors that their funds will be protected by a government guarantee, “subject to the completion of necessary technical work”.
According to National Treasury, “this work includes providing a government guarantee to one or more banking institutions to ensure the accounts of depositors can be migrated timeously and funds can be made available”.
Moonstone asked National Treasury whether this R2.4bn loan request is intended to provide additional security above the government guarantee that it announced in January.
No feedback had been received by the time of publication.
The KZN Treasury’s latest statement also raises another question – the speed at which this loan request needs to be approved.
The liquidation case was initially scheduled for 30 January but was postponed. Although a new date has yet to be set, National Treasury will have to decide on and approve the billion-rand loan within days rather than weeks – a timeline that could prove difficult to meet.
Moonstone asked National Treasury what the typical turnaround time is for processing a loan application of this size, what process will be followed to determine whether the loan is approved or denied, and who makes the final decision.
Again, no feedback was received.
