THE story of the crisis plaguing Ithala Bank, a financial institution based in KwaZulu-Natal, is one of rapid growth, systemic mismanagement, and a bold attempt at recovery as it faces a possible liquidation.
Founded in 1952 as a development finance institution (DFI) with a focus on serving underprivileged communities, Ithala Bank had long been a symbol of hope for those who had limited access to traditional banking services.
However, its journey took a sharp turn in the early 2000s, as the bank faced a series of challenges that brought it to the brink of collapse. The story of this crisis was one of poor governance, misplaced risk-taking, and the eventual effort to salvage the bank.
This comes as the Prudential Authority, an entity of the South African Reserve Bank (SARB), filed to have the bank liquidated, citing non-compliance as one of the reasons. The matter was scheduled to be heard in the Pietermaritzburg High Court last month but was postponed to March.
As the bank teeters on the brink of collapse, politicians, civil society, government and traditional leaders have vowed to save the bank, which has 257000 clients.
Earlier this week, President Cyril Ramaphosa authorised the Special Investigating Unit to probe the alleged corruption and fraudulent activities at Ithala.
The investigation would, among others, investigate whether proper channels were followed when the bank awarded a R34 million tender to IT company Tech Mahindra in 2017. According to its website, Tech Mahindra lists itself as a “global consulting service and system integrator that operates in over 90+ countries”.
The MEC for Finance in KZN, Francois Rodgers, also the DA’s provincial leader in KZN, welcomed Ramaphosa’s intervention.
Rodgers said he had engaged with the Prudential Authority (PA) and Johan Kruger, the Repayment Administrator (RA), to find a solution to the Ithala matter.
“Through these engagements I learnt about allegations of fraud, corruption and maladministration at Ithala,” said MEC Rodgers.
The Prudential Authority has argued in court papers that Ithala’s exemption to operate without a banking licence expired in 2023.
The bank has struggled for over a decade to secure a permanent banking licence owing to issues relating to non-compliance.
The Daily News, through well-placed sources, have learnt that some former and current high-ranking Ithala officials colluded with government leaders, some traditional leaders, and have allegedly been milking the bank for decades.
This newspaper has also seen a report penned with intimate details about the corrupt activities that have taken place behind closed doors at Ithala.
The report lists several people, including prominent businessmen, politicians and traditional leaders of allegedly being in cahoots in a bid to destroy the bank. In return, the report alleged that some of the implicated businessmen would then buy Ithala’s assets if the entity was liquidated and its assets auctioned.
Without naming anyone, Premier Thamsanqa Ntuli mentioned during a press conference late last month that he was aware that the crisis at Ithala was a result of corruption, which also involved politicians.
He vowed to move “heaven and earth” in a bid to save Ithala. The province also joined in the court case, supporting Ithala Bank against the Prudential Authority’s legal attempt to liquidate the bank. Ntuli said the collapse of Ithala would be a “blow” to the people of KZN, particularly the downtrodden.
“We must all fight to save this bank, because this bank belongs to the marginalised who rely on its services to survive,” said Ntuli.
Ithala Bank’s early success lay in its mandate to provide financial services to communities in KZN, targeting the black community, who were unable to get business or home loans from commercial banks.
The bank started as a vehicle for promoting economic empowerment, providing loans to individuals, small businesses, and cooperatives often excluded from mainstream financial systems.
Over time, Ithala expanded its offerings, including home loans, vehicle finance, and various savings accounts.
By the 1990s, ahead of the country’s first democratic elections in 1994, the bank’s reputation has grown. The number of customers turning to it for their financial needs surged.
However, the seeds of the crisis began to sow in the early 2000s when the bank’s management was embroiled in allegations of corruption.
Adding to the strain was Ithala’s adoption of a more risk-tolerant strategy that involved investing in high-risk assets and engaging in speculative lending practices.
A banking expert who did not want to be named said this included granting loans to businesses that were struggling and individuals who had limited creditworthiness.
“When these loans started to go into default, Ithala found itself grappling with an increasing number of bad debts,” said the expert.
To save the bank, the expert suggested that the government should reshuffle leadership, enforce improved risk management, and make overhaul operational changes.
WhatsApp your views on this story at 071 485 7995.
Daily News