South African Reserve Bank
By Tiisetso Makhele
17 January 2025
The decision by the South African Reserve Bank’s Prudential Authority to initiate legal proceedings for the liquidation of Ithala SOC represents a step backwards the in agenda to transform the economy and rid it of the monopoly by the finance capital brigade.
Ithala is a wholly state owned financial institution that was created to provide financial services to the people of Kwazulu-Natal. In many rural parts of the province, it remains the only institution with a physical presence, giving the people much needed services to their doorstep. During the time when commercial banks are closing branches, especially in townships and rural areas, Ithala was proving to be s financial services provider of choice.
The Reserve Bank has raised concerns about Ithala’s failure to meet regulatory requirements, and that it was facing insolvency. While these are crucial issues, I am not convinced that liquidation was a logical option. The role of the central bank is to use a host of tools to influence the economy through, amongst others, setting reserve requirements, open market requirements and quantitative easing. This essentially means that the role of a central bank is to aid economic development, rather than curtail it to achieve selfish ends.
As one of the few remaining privately owned central banks in the world, the South African Reserve Bank has often faced an identity crisis. In moments like this, there are questions about the impartiality of the Bank, since it also has an obligation to satisfy its private shareholders.
Part of the shareholders of the South African Reserve Bank are commercial banks, and one wonders if the Bank has not acted to protect the interests of its shareholders, rather than looking at its broader economic development and transformation agenda.
There is no doubt that the move by the Prudential Authority will benefit commercial banks, as more that 250 000 depositors will be seeking alternative banking platforms after this liquidation. The Reserve Bank has placed itself right at the centre of a conflict of interest, in that it has proven to be more loyal to its shareholders, rather than on its mandate to open financial market operations.
The financial industry remains highly monopolized, with white owned conglomerates dominating the market. This is an anomaly that the central bank must address, using the tools at its disposal. When many other central banks in developing economies are injecting money into developmental finance institutions like Ithala, our own Reserve Bank is closing such. The South African Reserve Bank, and the National Treasury, must refuse to be recruited into fighting the battles of the white capital establishment.
Makhele is an economics practitioner and an independent social commentator. He writes in his personal capacity
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