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One of Ithala Bank branches.
The catastrophic consequences of the freezing of KwaZulu-Natal development finance company, Ithala, is of its own making. That’s been the argument of the Reserve Bank’s Prudential Authority, and the repayment administrator for Ithala, before a full bench in the Durban High Court.
They are applying for leave to appeal a ruling in May that Ithala be allowed access to its bank accounts to continue its non-deposit taking business pending the finalisation of an application for its liquidation.
These steps come after Ithala continued to take deposits after its exemption from the Banks Act lapsed at the end of 2023.
Ithala argued in the Pietermaritzburg High Court in March that it cannot pay staff salaries, pay insurance premiums on its assets, or hire security guards to look after their branches and the money held there. That’s after repayment administrator Johannes Kruger froze its bank accounts in January after an application for the institution’s liquidation was filed.
Judge Muzi Ncube granted Ithala’s application in May, that it be allowed to continue its non-banking functions and given access to its bank accounts until the courts decide whether the institution must be liquidated to pay back depositors.
Acting for Ithala, Advocate Sandile Khumalo, told the Durban High Court that Kruger paid no heed to the Auditor General’s report that in the 2023/2024 financial year, Ithala was liquid and improved its cash reserves.
However, acting for the Prudential Authority, Advocate Hamilton Maenetje, told the judges that Kruger’s solvency report was based on information given by Ithala itself. According to that report, Ithala’s liabilities exceed its assets by over R400 million.
Both Khumalo and Advocate Spiko Dickson, for the KwaZulu-Natal provincial government, say the freezing of the bank accounts leaves thousands of SASSA pension and grant recipients in the lurch. Dickson says if Judge Ncube’s order is stayed by an appeal, it would be like asking a drowning man how long he can tread water.
This is because the frozen accounts also affect Ithala’s income from the repayment of loans.
Advocate Maenetje told the court that on Ithala’s own account 50% of its expenses and other business depend on deposits and grants from government. He says the frozen accounts include savings accounts, trusts, debit accounts, cooperatives and retail accounts.
He says the deposits Ithala was taking, contrary to an instruction by the Prudential Authority and a later court order — don’t comprise solely of pensions and social grants.
Acting for Kruger, Advocate Etienne Theron, told the court that Ithala acted unlawfully with its continued deposit taking and that the court cannot condone someone taking the law into their own hands.
The court is expected to hand down its ruling in two weeks.
