Ithala is wooing Bidvest Bank
The management of Ithala, which has been stripped of its deposit-taking functions by the Prudential Authority (PA), is trying to get Bidvest Bank to replace Absa as its sponsor on the national payments system.
The bank’s top brass told the finance standing committee on Tuesday that they were in negotiations with Bidvest Bank to partner with it after Absa decided to end their 20-year relationship. Absa will cease to be the company’s sponsor on May 1.
“Bidvest [on December 15] issued a letter to the PA, cosigned by Ithala, highlighting Bidvest’s intent on supporting Ithala regarding the clearing and sponsorship settlement and proposed strategic alliance,” reads Ithala’s presentation.
“The parties agreed that based on the enhanced due diligence as well as the verification process that it will take six to eight months to finalise the process. Bidvest advised that it may require two to three months to finalise the transition from the current sponsor.”
The Reserve Bank, to which the PA reports, has legal responsibility for the national payments system, the backbone of SA’s financial system. Nonclearing financial services companies such as Ithala participate in the national payments system indirectly through sponsorship agreements with other clearing banks. Without a sponsor it is practically impossible to do business and transact in SA.
Business Day has it on good authority that Ithala approached Standard Bank to be its sponsor after Absa said it would be ending the relationship.
“Bidvest Bank would like to reiterate that there is no agreement in place with Ithala,” the company’s spokesperson said.
Ithala’s deposit-taking activities are overseen by a repayments administrator while it is barred from granting credit to consumers following the expiry of its exemption notice in December, which allowed it to conduct banking activities without having the required licence.
It said it was appealing the decision by the PA to appoint a repayments administrator.
The PA in December appointed Johan Kruger, one of SA’s leading investigators into Ponzi and pyramid schemes, as Ithala’s repayments administrator. This is after the banking regulator decided that it would not grant Ithala the exemption notice it has relied on for more than two decades to conduct banking activities.
According to the Reserve Bank’s website, a repayment administrator is appointed to “manage and control the repayment of the money unlawfully obtained”.
Kruger, according to Ithala, has removed its executives as signatories on its bank accounts.
Ithala’s executives detailed a blow-by-blow account of its interactions with the PA in the lead-up to the expiry of the exemption in mid-December.
The company said the PA wrote it two letters in November telling it to cease taking deposits and granting loans as the regulator would not renew the exemption notice that allowed it to conduct banking activities without a banking licence.
After several engagements with Ithala the PA softened its stance, allowing Ithala to take deposits until December 1 but not allowing it to grant credit. The PA later extended the grace period for taking deposits to December 9, before finally moving to appoint Kruger.
“Ithala has made significant strides in addressing concerns raised by the PA. However, the lack of sufficient capital remains an impediment in Ithala’s goal of being a commercial bank. Ithala has been trading for over 20 years and has relied on minimal funding from the government. Running a bank requires substantial capital funding and there has been no commitment from the government,” Ithala’s presentation reads.
“As an interim solution, Ithala has proposed an alliance that will host the deposits for Ithala for a specified period whilst Ithala regularises its operations to become a licensed commercial bank. The alliance option presents the risk that Ithala may not be able to operate its branches in the rural areas.”
Ithala has on two occasions applied for authorisation to establish a bank as per section 12 of the Banks Act. The first application was submitted in 2016 and was declined because of insufficient capital, lack of requisite banking skills and systems. In June 2023, Ithala submitted its second application, which was also declined.
Nearly two-thirds of the bank’s loan book is made of home loans. It had about R2.9bn in deposits at the end of November 2023, with 37.1% of this made up of fixed deposits.
Ithala’s presentation also shows it has 27,475 stokvel accounts with a total value of R290m, with a footprint of 38 branches in KwaZulu-Natal. There are 328,704 customers holding 398,522 accounts.”