KZN’s Ithala Bank’s woes mount

The KwaZulu-Natal Legislature’s Scopa on Tuesday expressed concerns about Ithala, the state-owned bank’s ability to continue as a going concern amid mounting losses and staffing challenges.

Ithala SOC Limited, which is owned by the KZN provincial government, is currently operating on a temporary licence following several delays in obtaining a commercial banking licence.

While the bank’s management, during its meeting with KZN Scopa on Tuesday, was optimistic that the entity would be granted a commercial banking licence, Scopa members were concerned that problems ranging from losses — which have since ballooned to R51 million, to the entity’s failure to fill critical vacancies, would prevent it from being granted a licence.

ALSO READ | Ithala partners with KZN taxi council

Ithala’s situation ‘worrisome’
KZN Scopa chairperson Maggie Govender described the situation in which Ithala finds itself as “worrisome”.

“There has been a decline in customer deposits. Uncertainty around how long Ithala will continue as a going concern is a worrying factor.”

READ MORE
KZN Health Department ‘unable’ to defend medico-legal claims
People will not put their money in an entity where there are no profits.
To make matters worse, the bank recently recorded R3,6 million irregular expenditure and R2 million in fruitless and wasteful expenditure.

ALSO READ | SIU report to Scopa paints damning picture of eThekwini Municipality

Scopa not impressed by CEO’s reassurance
Despite an assurance by the Ithala SOC chief executive Thulani Vilakazi that systems were in place to ensure that irregular expenditure was reduced going forward, Scopa members were not impressed.

KZN Scopa member Sipho “KK” Nkosi, who is also the provincial legislature’s finance portfolio committee chairperson, said reducing irregular expenditure was not an acceptable option.

“When we hear about reduction in irregular expenditure, we get concerned as Scopa. Our position is that from now on, we don’t want to hear anything about irregular expenditure — it has to stop,” he said.

Ithala Bank’s reputation has been tarnished by questionable practices which saw the bank granting loans to politically-connected individuals, only to write off the loans a few years down the line.

Nkosi said the bank now has a duty to demonstrate that loans which are written off do not include those of individuals “who have the capacity to pay”.

Challenges in obtaining commercial bank licence
The Prudential Authority (PA) which is responsible for issuing bank licences, has given Ithala until May to submit an application for a commercial bank licence.

The bank’s challenges in obtaining a commercial banking licence came to light amid the raging debate within the ruling ANC on whether the national government should establish a state bank.

Members of the ANC radical economic transformationfaction (RET) faction, which was defeated by the ruling party faction supporting President Cyril Ramaphosa at the organisation’s December elective conference, often used the Ithala Bank as proof that the government can run a viable bank.

ALSO READ | Ithala offers office space

However, the requirements for registering a commercial bank are proving to be more stringent for Ithala, which in recent months has only been able to fill one out of the bank’s six critical vacancies. As things stand, the PA wants Ithala to put up 75c for each R1 deposit it accepts from customers.

The PA ratio would require the bank to have billions of rands in reserves should it get more customers.

Regulators, including the Reserve Bank, have been forced to do more to protect customer deposits following the VBS Mutual Bank scandal where customers struggled to get their deposits back after the VBS collapse six years ago.

This week the Reserve Bank announced further measures intended to protect customers’ deposits.

Through the Reserve Bank’s Corporation for Deposits Insurance, bank customers would be guaranteed to get a maximum of R100 000 from the government in the event of the collapse of the bank in which they have deposited their money.

ALSO READ | KZN Social Development Department accused of underspending by Scopa

According to Reserve Bank Deputy Governor Kuben Naidoo, banks would still be required to take out an insurance to cover customer deposits.

The banks would pay an insurance premium based on the size of their covered deposits. And if the bank were to fail, then the government would pay out those depositors up to a R100 000