Play ball, minister tells Ithala

• Godongwana urges lender to drop lawfare, convert to a mutual bank or partner with an established bank

Finance minister Enoch Godongwana has urged embattled KwaZulu-Natal-based, state-owned Ithala to lower its ambitions and consider partnering with an established lender or apply for a less strenuous mutual bank licence while it regularises its affairs to qualify to become a commercial bank.

This comes as Ithala engages with the Prudential Authority (PA) in a high-stakes game over its lapsed exemption and the appointment of a repayments administrator.

Godongwana told legislators on Wednesday that Ithala preferred engaging in law warfare with the regulator than finding a long-lasting solution to its challenges in getting a commercial licence. It has been pursuing this for more than 20 years.

The minister said Ithala has so far thwarted proposals for it to partner with an established bank or apply for a mutual bank licence, while buying time to get its affairs in order to qualify for a commercial banking licence.

“Can the honourable members asking me this question [on the sustainability of Ithala] do me a favour and prevail on Ithala to play ball.

“The current regulatory framework does not allow for a provincial bank. We have offered Ithala two options in the meantime: the first was to partner with an existing bank or alternatively they can convert Ithala into a mutual bank,” said Godongwana.

“Therefore its depositors become shareholders or members of the bank. Over time, once it finishes that first step, it can graduate into a commercial bank. Ithala is spending more time in court than in having discussions with us.”

While not a bank, Ithala takes deposits due to an exemption granted to it by the PA. Ithala has until recently been operating with a banking licence exemption notice, which is renewable every 12 to 24 months.

The last exemption lapsed in December — after Ithala failed to meet some of the conditions laid out by the PA.

These included a condition that the provincial government or national government provide irrevocable and unconditional guarantees to fund all capital shortfalls to an amount of 15% of the risk-weighted assets held by Ithala, or R250m. This guarantee would be in favour of the PA.

The expiry of the exemption saw the PA appoint Johan Kruger, one of SA’s leading investigators into Ponzi and pyramid schemes, as Ithala’s repayment administrator after a court order in December, essentially taking over Ithala’s deposit-taking activities.

However, the Pietermaritzburg high court ruled last week that Ithala should have been given an opportunity to state its case before court when the application to appoint Kruger was made.

The PA has said the decision of the high court does not mean Ithala can resume deposit-taking activities.

Business Day reported in October that tension between Ithala and the PA had reached boiling point.

In the letter, the PA also criticised Ithala, saying its regulatory returns are often late and not in compliance with regulations governing banks, making it difficult for the PA to appropriately supervise it.

“The Banks Act does not provide for a provincially owned entity such as Ithala to apply for authorisation to establish a bank. Consequently, Ithala’s continuation of its deposit-taking activities will be entirely reliant on the PA’s continued issuance of exemption notices in terms of the Banks Act, the letter reads. “Operation” under exemption is meant to be a temporary measure that is aimed at assisting qualifying institutions to regularise themselves as a type of financial institution ... Ithala has not been able to do that since [its] formation.”

Nearly two-thirds of the bank’s loan book is made up of home loans.

It had about R2.9bn in deposits at the end of November 2023, of which 37.1% comprised fixed deposits.

Ithala also has 27,475 stokvel accounts with a total value of R290m, with a footprint of 38 branches in KwaZulu-Natal.

It has 328,704 customers and 398,522 accounts.

MINISTER SAYS LENDER THWARTED PROPOSALS FOR IT TO PARTNER WITH ESTABLISHED BANK OR BECOME A MUTUAL BANK