By Thabo Mosia
Durban – The Financial Sector Conduct Authority (FSCA) has suspended the operating licence of Ithala SOC Limited, a state-owned development finance institution crucial to the province’s economic landscape. The suspension, effective from 26 July 2024, stems from Ithala’s failure to meet essential financial soundness requirements, placing its future and that of its clients in jeopardy.
Suspension Details and Legal Challenges
Ithala Bank’s licence was suspended under the provisions of the Financial Advisory and Intermediary Services (FAIS) Act, following the FSCA’s determination that the bank failed to comply with solvency requirements necessary to protect its clients’ interests. According to the FSCA, the suspension will remain in place until Ithala rectifies the issues that led to this drastic action. This decision effectively prohibits Ithala from entering into any new business ventures but allows it to continue servicing existing clients while transitioning outstanding matters to other financial service providers.
In response to the suspension, Ithala Bank sought an interim relief by applying to the Financial Services Tribunal for reconsideration of the FSCA’s decision. However, their application was dismissed on 22 August 2024, leaving the bank with limited recourse and heightening the urgency of finding a resolution .
Economic Impact and Concerns Raised by Stakeholders
The suspension has sparked widespread concern across various sectors in KwaZulu-Natal. Ithala is not only a financial institution but also a key player in promoting economic growth in the province, especially in rural areas where it is the sole banking presence. The bank’s operations support over 27,000 stokvels and 1,000 cooperative accounts, representing a significant portion of the local economy. The potential disruption of services to these clients has raised fears of an economic setback, particularly for small businesses and cooperatives reliant on Ithala for financial support.
Zulu King Misuzulu kaZwelithini has expressed deep concern over the suspension, emphasizing its devastating potential on thousands of livelihoods in the province. The King, through his traditional Prime Minister Reverend Thulasizwe Buthelezi, has urged the KwaZulu-Natal government to intervene swiftly to avoid further economic damage. The King views Ithala as a legacy institution, critical to the province’s socio-economic development, particularly in underserved rural and township communities .
Melanie Veness, CEO of the Pietermaritzburg Midlands Chamber of Business (PMCB), echoed these sentiments, stating that Ithala’s role in driving sustainable socio-economic development through funding is irreplaceable. She warned that without institutions like Ithala, achieving a more equitable and transformed economy would be an unattainable goal .
Government’s Response and Accountability Measures
KwaZulu-Natal Premier Thami Ntuli has vowed to address the crisis, confirming that the provincial cabinet has already discussed possible interventions to restore Ithala’s operational status. Ntuli announced plans to engage with President Cyril Ramaphosa and Finance Minister Enoch Godongwana to seek a resolution. He stressed that once the licence issue is resolved, stringent accountability measures will be enforced to ensure those responsible for the mismanagement of the bank are held accountable.
“The situation at Ithala is a result of longstanding compliance issues that have been neglected. Accountability must be ensured, and consequence management will be applied,” Ntuli stated. The Premier also mentioned that the provincial government is exploring all possible options to reinstate the bank’s licence as a matter of urgency .
The Future of Ithala and Its Clients
The suspension of Ithala’s licence raises significant concerns about the future of its clients. According to financial analyst Khaya Sithole, Ithala’s clients face uncertainty, especially with the termination of its banking partnership with Absa, which had been its sponsor for nearly two decades. Without securing a new sponsorship, Ithala could be excluded from the national payment system, making it difficult for clients to conduct transactions.
Sithole emphasized the importance of clear communication from the bank and regulators to manage clients’ expectations during this transitional period. He drew parallels with the VBS Mutual Bank crisis, though he stressed that Ithala’s situation is distinct, primarily involving compliance issues rather than any allegations of fraud or misappropriation of funds .
Public and Political Reactions
The suspension has also prompted reactions on social media, with many users expressing concern about the impact on small businesses and the broader community in KwaZulu-Natal. Some users have criticized the government for allowing the situation to escalate to this point, while others have called for more robust oversight of state-owned entities to prevent similar crises in the future.
Politically, the situation has placed pressure on the ruling party in the province, with opposition groups and civic organizations demanding greater transparency and accountability. The Public Servants Association (PSA) has urged immediate action to resolve the situation, warning that prolonged uncertainty could undermine confidence in the province’s financial institutions.
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