While news of Finance Minister Enoch Godongwana’s R2-billion guarantee to repay Ithala SOC Limited’s retail depositors has brought some relief to thousands left in limbo, KwaZulu-Natal Finance MEC Francois Rodgers has warned that the terms and conditions of the guarantee could have dire consequences for the province’s finances.
The Prudential Authority (PA) applied to the High Court on 16 January to liquidate Ithala, saying it was the best way to protect the interests of the institution’s estimated 257 000 depositors. Ithala holds deposits worth R2.47bn.
On the same day, National Treasury assured the public that a government guarantee would safeguard depositors’ funds, pending the outcome of the court case. The plan involved providing the guarantee to a banking institution to help transfer customer accounts. Treasury said details would follow once the court ruled on the liquidation application.
Then on 4 March, the KwaZulu-Natal Treasury applied for a R2.4bn loan from National Treasury to support Ithala’s depositors.
Rodgers, in a statement on the minister’s handling of the Ithala crisis released last week, said Godongwana had written to Reserve Bank Governor Lesetja Kganyago on 3 April confirming a R2bn guarantee – but limited to retail depositors, who number about 223 000.
Rodgers noted that “without first canvassing his idea with the KZN Government of Provincial Unity (GPU), alluded that the province will be responsible for the repayment of the guarantee”.
News24, which obtained a copy of the minister’s letter to Kganyago, reported that deposits from government entities and financial institutions, including interbank funds, were explicitly excluded from the guarantee. Godongwana reportedly said these deposits fell under the financial system’s own risk controls and did not warrant the same protection as individual retail accounts.
He added that public entities owed money by Ithala could seek recovery directly from the KwaZulu-Natal provincial government.
According to News24, Godongwana acknowledged that the R2bn guarantee would leave a shortfall of about R160 million. However, he said the liquidation would proceed, allowing the appointed liquidator or repayment administrator to reimburse remaining depositors if enough assets could be recovered.
In the letter, Godongwana reportedly cautioned that issuing a government guarantee to a private financial institution could conflict with the Public Finance Management Act. The finance minister requested that the SARB facilitate the repayment of Ithala’s depositors under the terms of the approved government guarantee.
Commenting on the content of the letter to Kganyago, Rodgers, “on behalf of the GPU”, stated that the province does not support the actions of Godongwana.
“I, together with my team at KZN Treasury, have always engaged in good faith with Minister Godongwana and National Treasury on the inherited challenges pertaining to Ithala SOC Ltd,” said Rodgers.
“We have complied with all requests for information. We have also supplied detailed information on the liquidity of the entity and preferred action plans to address the inherited challenges.”
He said the province had proposed securing a government guarantee to protect Ithala’s retail depositors, followed by the appointment of a private financial institution to restore access to depositors’ funds.
“We expressed that the province will secure a guarantee that would be used to secure the accounts of Ithala retail depositors, and a private sector financial institution would then be appointed to allow Ithala depositors to trade on their accounts, which have been illegally frozen by the repayment administrator since January this year.”
Rodgers expressed frustration that the finance minister had not consulted with the provincial government on the final terms of the guarantee.
“It is worth re-iterating that Mr Godongwana’s actions were never discussed with the GPU, but they have dire consequences for the provincial fiscus,” he said.
He also noted that despite numerous attempts to meet with the minister to resolve the matter, his requests have gone unanswered.
“It is disappointing to note that numerous attempts by MEC Rodgers to meet with Minister Godongwana on this matter have not been met with a response,” the statement said.
Rodgers concluded that he remains open to engaging with the finance minister and other stakeholders to find “a mutually beneficial solution to this crisis”.
