Special Investigating Unit (SIU)
By Thobeka Makume
The Special Investigating Unit (SIU) has initiated a comprehensive investigation into alleged financial mismanagement at Ithala Development Finance Corporation, commonly known as Ithala Bank. This action follows President Cyril Ramaphosa’s signing of Proclamation 243 of 2025, which authorises the SIU to probe serious maladministration within the institution.
Scope of the Investigation
Proclamation 243 of 2025 empowers the SIU to examine various aspects of Ithala Bank’s operations, with a particular focus on the procurement processes related to the supply, implementation, and maintenance of an integrated banking solution. The investigation aims to determine whether contract payments adhered to National Treasury guidelines and to identify any instances of irregular, wasteful, or unauthorised expenditure that may have led to financial losses for the institution or the state.
The SIU will also scrutinise any unlawful conduct by Ithala employees or officials that may have resulted in improper benefits. This includes assessing whether fraudulent actions occurred, identifying resultant losses or damages, and examining any irregular or unlawful behaviour by Ithala employees or associated entities.
The investigation covers allegations of unlawful and improper conduct that occurred between 1 January 2017 and 31 January 2025, as well as any related activities before or after these dates that are pertinent to the matters under investigation or involve the same individuals, entities, or contracts.
Background of Ithala Bank
Established as a developmental finance institution, Ithala Bank has been pivotal in providing banking services and financial assistance to emerging entrepreneurs and rural populations in KwaZulu-Natal. The institution has played a significant role in offering financial services to historically marginalised communities, particularly in rural areas where commercial banks have limited presence.
Regulatory Challenges and Liquidation Proceedings
Despite its developmental mandate, Ithala has faced significant regulatory challenges. The Prudential Authority (PA), a regulatory body under the South African Reserve Bank (SARB), filed an application in the Pietermaritzburg High Court to liquidate the institution, citing insolvency and failure to meet regulatory requirements. This decision affects approximately 257,000 depositors who now face disruptions as their accounts are closed and funds distributed through the liquidation process.
The PA justified its move by stating, “The liquidation of Ithala is necessary to protect depositors and ensure an orderly distribution of funds. The appointed liquidator will utilise insolvency legislation to recover and distribute funds to the extent possible.”
Financial Position and Solvency Debate
Contrary to the PA’s stance, Ithala’s management and the KwaZulu-Natal Provincial Treasury have asserted that the bank does not have a solvency or liquidity problem. As of 31 October 2024, Ithala’s total assets amounted to R3.25 billion, while its total liabilities were R2.93 billion, indicating that assets exceed liabilities by R316 million. The institution also reported having approximately R250 million in cash and bank balances, with an additional R400 million in liquid assets such as treasury bills and other investments.
The majority of Ithala’s assets are held in loans advanced to clients, primarily secured by underlying assets like home finance. However, due to the nature of these assets, the bank is not in a position to repay all customer deposits immediately. The customer deposit balance stands at R2.4 billion, and it is commonplace for banks to have an asset/liability mismatch. Ithala has stated that it far exceeds the liquidity requirements set out in the Banks Act and additional requirements imposed by the PA.
Government Intervention and Stakeholder Reactions
In response to the liquidation proceedings, the National Treasury has provided guarantees for retail deposits, committing to ensuring a smooth transition for depositors to alternative banking platforms and pledging to protect their funds throughout the liquidation process. A joint statement from the Treasury and the Ministry of Finance assured that “Retail depositors’ funds will be safeguarded, and a repayment administrator has been appointed to oversee the distribution of available funds.”
The African National Congress (ANC) has expressed deep concern over the challenges facing Ithala Bank, highlighting its critical role in enabling access to banking services for rural communities, stokvels, churches, and small businesses in KwaZulu-Natal. The party reaffirmed its commitment to financial inclusion and economic justice, as articulated in its 2024 Election Manifesto, and has tasked the Economic Transformation Subcommittee with devising strategies to safeguard Ithala Bank, protect workers, and ensure service continuity.
The Inkatha Freedom Party (IFP) has also voiced grave concerns over the impending liquidation of Ithala SOC Limited. IFP Treasurer-General Narend Singh has urged the KwaZulu-Natal provincial government and national Treasury to act decisively to prevent the bank from facing the same fate as the ill-fated VBS Mutual Bank. The party emphasised Ithala’s critical role in providing financial services to historically marginalised communities, particularly in rural areas where commercial banks have limited presence.
Historical Context and Previous Investigations
Ithala Bank has faced scrutiny in the past regarding its procurement processes and financial management. In 2010, controversy erupted when news broke that the head of Ithala at the time had flouted tender regulations in the awarding of work for the construction of schools. This led to investigations and recommendations for disciplinary action. The current SIU investigation aims to uncover any ongoing issues related to maladministration and corruption within the institution.
Implications for Stakeholders
The SIU’s investigation and the ongoing liquidation proceedings have significant implications for various stakeholders, including depositors, employees, and the broader community that relies on Ithala’s services. The potential closure of Ithala threatens over 400 jobs and could disrupt financial services for marginalised communities, including SASSA grant beneficiaries.
Business leaders have also expressed concern over the impact on small and medium-sized enterprises (SMMEs) that depend on Ithala for financial support. The eThekwini Municipality’s plans to enter into a three-year R20 million partnership with Ithala to support SMMEs have been put on hold due to the bank’s legal troubles, delaying vital development initiatives.
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