ActionSA Warns That Urgent Action is Needed to Prevent Ithala Bank from Experiencing a VBS-Style Collapse

ActionSA fears that without urgent intervention in several key areas of concern, Ithala Bank may collapse, a troubling conclusion following the Standing Committee on Finance’s oversight visit to Ithala to investigate the crisis surrounding the bank and the suspension of its licence.

Our core concern lies in the critical role that Ithala plays in fulfilling its developmental mandate to provide essential financial services and insurance to poor and marginalised rural communities, particularly in KwaZulu-Natal, where access to such services from traditional market players is limited. The collapse of Ithala would be devastating to these vulnerable communities, and it is imperative that every effort is made to prevent this impending crisis.

The Standing Committee engaged with the Board and Executives of Ithala Development Finance Corporation and Ithala SOC Limited (State-owned company) the KZN MEC for Economic Development, Tourism and Environmental Affairs, the Financial Sector Conduct Authority (FSCA), and the South African Reserve Bank (SARB) / Prudential Authority (PA). This engagement highlighted several key areas of concern requiring urgent attention and intervention:

– The breakdown in the relationship between Ithala and the regulatory authorities has fostered significant conflict and mistrust, with conspiratorial allegations straining the necessary working relations between the regulators and the bank.

– The breakdown in the relationship between Ithala executives and the Repayment Administrator is negatively impacting the daily operations of Ithala and depleting the remaining goodwill.

– The profitability of Ithala is under threat, with financial losses ballooning from R50 million to R90 million over the past three years, which is not sustainable.

– Solvency concerns raised by the regulatory authorities stem from the decreased capital injection by the Provincial Government. Despite the financial losses, capital introduced has decreased from R65 million to R51 million, exacerbating the situation.

– The laundry list of compliance issues identified means that regulatory authorities cannot overlook these issues, and they need to be addressed.

– The numerous, ongoing and costly court challenges undertaken by Ithala against the regulatory authorities, challenges which are depleting Ithala funds.

ActionSA believes that, in recognition of the overwhelming weight of the numerous issues, urgent work is required to ensure the bank’s survival and, most importantly, the protection of its crucial developmental role.

The reality is that many of Ithala’s clients and customer communities are dependent on the bank’s functionality, making it vital that customer deposits currently held with Ithala are not at risk and are protected.

Recognising this, ActionSA will be communicating with the relevant stakeholders, requesting their urgent intervention to ensure that the protection of customer deposits is prioritised and that we do not face another VBS scenario.

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