The expiration of a contract between Ithala SOC Limited and Absa bank has been named as one of the contributing factors to the challenges faced by the bank.
Ithala had a contract with Absa to use its technology to process its banking transactions, which has expired.
Economic Development, Tourism and Environmental Affairs (Edtea) MEC in KwaZulu-Natal Siboniso Duma on Tuesday briefed the media on the South African Reserve Bank Prudential Authority’s action against Ithala which led to a order being granted last December.
The order states that an exemption notice, that allowed Ithala to carry out its operations, lapsed on December 15 last year.
The order stated that due to the lapsing of the exemption notice, “Ithala is not entitled to continue any deposit-taking activities and to deal with any deposits already received otherwise than under the direction of a repayment administrator appointed by the South African Reserve Bank Prudential Authority and any repayment plan put in place”.
Johan Kruger has been appointed as Ithala’s repayment administrator.
Duma said yesterday that Ithala SOC Limited is working hard to keep its doors open and ensure that it is compliant with the Bank’s Act.
Ithala SOC’s ability to continue operating and its ambition to be a fully fledged bank were put in doubt by the Reserve Bank action.
Speaking to “The Mercury” on the issues impacting on Ithala SOC Limited, Duma said there were a number of challenges with the bank that were being addressed.
He added that one of the major contributing factors to the current problems was that the contract it had with Absa bank to use Absa’s infrastructure and technology for its banking services had expired.
He said this contract had allowed Ithala SOC to operate in terms of the exemption notice.
“There are many challenges as I have mentioned, and one was Absa saying they will not renew the contract to provide Ithala with a ‘bin’. The bin is the infrastructure that allows you to process transactions like for instance when you deposit money and that money reflects (as deposited).
“One of the things that we need to address right now is to find a bank that will work with Ithala that will give us all the facilities, the storage and IT technology that is compliant with the banking sector code,” Duma said.
He added that the court order was not an indication of financial problems in the bank.
“The bank has R2 billion in its funds, so it has no financial problem. The problem is that the Reserve Bank has given a directive. We can guarantee the public that we continue to work and the bank will be strong,” he said.
He said they are working with the South African Reserve Bank Prudential Authority because the provincial government did not want to have a situation where the people of KwaZulu-Natal who have come to rely on a bank like Ithala end up not being able to make use of the bank.
“Ithala remains one of KwaZulu-Natal’s unique facilities that have been critical in the transformation of the province’s economy. We have sought to use Ithala to address issues of wealth distribution and creation of wealth at the bottom of the pyramid.
“We wish to salute the President of the Republic of South Africa, Cyril Ramaphosa, who is working jointly with the Minister of Finance Enoch Godongwana and our Premier, Nomusa DubeNcube, to ensure the stability of Ithala.
“In particular, as an executive authority responsible for an oversight role over Ithala, I am satisfied with the progress being made to ensure compliance with the Banks Act,” said the Edtea MEC.
Absa declined to comment on the matter.
The bank said, “Contractual arrangements with counter parties and clients are generally confidential and it would, therefore, not be appropriate for Absa to comment on its relationship with Ithala SOC Ltd”.
The Mercury