PA: Ithala took deposits illegally after licence lapsed
The KZN High Court has heard Ithala Bank deliberately broke the law by continuing to
take deposits even after its licence exemption to operate as a bank lapsed.
The Prudential Authority is challenging a ruling that allowed Ithala to partially resume operations in May.
The matter was heard in the High Court sitting in the Durban Magistate's Court, on Friday.
Advocate Hamilton Maenetje for the Prudential Authority has argued that Ithala defied a court order and ignored an instruction in December to stop taking deposits.
He says operations were only halt after a liquidation application was launched in January.
He further argued that allowing the entity to continue operating under these conditions would undermine the rule of law -and could lead to irreparable harm to depositors and the broader financial system.
Maenetje has also questioned the government’s promise to back depositors, saying it is vague.
"We suspect that Ncube has done in giving the execution order, relying on a promise is to leave depositors on a ledge. Can the depositors say the minister has made a guarantee in our favour? Nobody knows and also who is it in favour of? The letter says when there's a transferring bank upon liquidation, we will guarantee.
" So, there's a transferring back we don't have yet. There's going to be a liquidation, we don't have yet. Do we know the terms of the guarantee? We don't know yet. There is nothing, it's those political statements we hear of every day."
Ithala's lawyer, Advocate Sandile Khumalo, says the Prudential Authority's fears of a bank run are unfounded.
He told the KZN High Court that most deposits come from government bodies like SASSA and are withdrawn by beneficiaries within days.
Khumalo argued that the same government that owns Ithala is also its main depositor, so claims of public risk don't add up.
He said the real harm is being done by blocking deposits, with over 450 workers unpaid, lapsed insurance, and unsecured properties since January.
He questioned why the repayment administrator suddenly froze operations in January after managing the bank for 13 months without issue.
He also rejected suggestions that the government's guarantee to protect depositors is vague, saying it reflects years of ongoing financial support.
" I didn't want to leave that issue open, that people have been acting unlawfully and ignoring the law. There is a difference of interpretation.
“ I am prepared to accept that they interpret that section 122 differently to how we interpret it. If Ithala's premises are left unguarded for how ever long , even two weeks, if people owe each for housing loans and home loans and financing of their businesses and they're willing and able to pay what has been lent to them, but the repayment administrator is stopping them. Is that not an exceptional circumstance? Would that not cause irreparable harm?”
Khumalo and various parties representing the Prudential Authority, the Repayment Administrator and the provincial government presented their arguments before Deputy Judge President Zaba Nkosi, Judge Garth Harriso and acting judge David Sachs.
The court is expected to make a judgment on the matter in two-weeks’ time.
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