The 429 page long court papers of the Prudential Authority (PA), which is seeking to liquidate Ithala Bank, has dismissed claims made in public by the latter that it is solvent.
In an affidavit filed by the CEO of the PA, Nomfundo Tshazibana for the Pietermaritzburg High Court, she said in October 2024, Ithala Bank was directed to cease taking deposits from customers and repay all the money it holds.
That would have meant that the bank had to pay R2.4 billion to depositors within 14 business days. Instead of complying, the loss-making Ithala Bank came back a month later with its lawyers to say it was going to challenge the directive in court.
The PA claims it issued the directive after learning from internal reports that the bank is insolvent. The insolvency issue is recorded in a report the CFO of Ithala compiled. In it, the CFO, Mohamed Gafoor, said if the bank was to immediately close down and have to pay all the depositors, it would face a shortfall of R570 million.
That meant that the bank’s liabilities far outstrip its assets, something that is not permitted as it poses a risk to the entire banking system of the country.
“Ithala unequivocally indicated through a letter from its attorney of record, Malatji, that it would be unable to repay the unlawfully held deposits and thus committed an act of insolvency,” Tshazibana said in her affidavit, adding that there was solvency report with findings.
The worries around the shortfall were also shared by Ithala Development Finance Corporation (IDFC), a group which Ithala Bank is part of. The IDFC estimated that should Ithala Bank be forced by circumstances beyond its control to wind down, their shortfall would be R979 million.
Tshazibana revealed that in 2020, 2021, 2022 and 2023, Ithala Bank had liquidity challenges as its assets did not exceed liabilities and that was recorded in official financial statements of the bank.
“Ithala failed to demonstrate that the number and nature of its insurance client base or policy holders that can be insulted from its ongoing challenges with the deposit taking business. Ithala failed to provide sufficient evidence to demonstrate intent to remedy its financial soundness situation,” she said, adding that it was for these reasons that the Financial Sector Conduct Authority (FSCA) decided to suspend the bank’s FSP (financial service provider) licence.
The court paper’s revelation flies in the face of repeated claims by the bank’s management and the KwaZulu-Natal provincial government that the entity’s finances are in order and it should not be closed down.
Shockingly, Ithala’s money seems to have been badly managed as it had issued cash advances (credit card-like facility) to 267 clients who were below the age of 18 and appeared to have no means to repay them.
This is one of the many irregularities that were found during an investigation based on limited access to information as the bank allegedly withheld documents requested by the RA (Repayment Administrator) Johan Kruger.
