What can save Ithala?

PROBLEMS: BACKERS, DETRACTORS VENTILATE ON CRISIS FACING BANK

- Khaya Sithole

Over the past few months, backers and detractors of Ithala Bank have been ventilating on the existential crisis facing the bank.

Since the termination of its South African Reserve Bank-issued exemption that allowed it to operate like a fully-licensed bank and take deposits, Ithala's problems have multiplied and the synthesis of the key issues have become conflated and muddied by all stakeholders.

From the Reserve Bank's perspective, the actions it has undertaken include the decision not to renew the exemption, indicating to Ithala that it needed to address its licensing deficiency by applying for a banking licence, and then appointing a repayments administrator who then recommended the liquidation process.

The sum of these events has left some confused regarding what the actual key issues are.

The exemption problem is a longstanding one and while the exemption persisted, the expectation was that the bank would be run as prudently as any other financial institution and maintain the requisite solvency and liquidity profile. And since the bank continued to operate before the end of the exemption, any issues it might have had—including liquidity and solvency mismatches—would have formed part of the operational headache that all custodians of financial institutions have to continuously manage.

In other words, if the management had been poor, the operational issues would have facilitated the demise of the institution long before the expiry of the exemption.

In the aftermath the role of the Reserve Bank, the repayments administrator and the bank's executives has become a matter of perpetual litigation across all sides.

At the core is the question of what exactly should have happened once Ithala's ability to take deposits was no longer available.