WHILE the battle for Ithala Bank to become a fully-fledged state-owned bank with a right to compete with the big five banks escalates, the KwaZulu-Natal parliament doubts Ithala would be able to acquire its permanent banking licence by the end of next month, which is the cut-off date.
The bank has been struggling for about 10 years to obtain a permanent banking licence and as a result, it had, up to now, been operating with a renewable Banking Licence Exemption Notice, which is renewable every 12 to 24 months. The temporary licence limits the activities of the bank, which was established by the then KZN government, leaving bigger banks to still control the sector.
The executive managers of the bank, which is an entity owned by the KZN Department of Economic Development (DED), met the provincial parliamentary Standing Committee on Public Accounts (Scopa) last Wednesday, where MPLs grilled them on several issues, including their failure to get a permanent banking licence.
As a state-owned entity, if Ithala becomes a fully-fledged bank, it stands to acquire state-bank status in South Africa, and become a viable alternative for people who are rejected or unbanked by commercial banks.
During the Scopa meeting, it became clear that there was still a very long way to go for Ithala to obtain its permanent banking licence. Although still without an actual banking licence, Ithala said it was the only state-owned entity that provided banking services and was regulated by the SA Reserve Bank and other industry regulators. “Applying for a banking licence is a process, and engagements with the Prudential Authority (PA) to apply for a full banking licence are ongoing.”
The bank said its application had been affected by the Covid-19 pandemic and the civil unrest in the province, which impacted its business performance. “Obtaining a banking licence will allow Ithala to expand its services to more people and areas that do not have access to financial services within KwaZulu-Natal and the rest of South Africa,” the bank said.
The PA had, in past years, given Ithala strict conditions to fulfil for it to be granted a permanent licence. It has been previously reported that among the conditions, it would need to appoint officials with relevant qualifications to key positions. In trying to meet those conditions, in 2020 it appointed, among others, Dr Thulani Vilakazi, as the new chief executive, Sethu Nsele as the chief auditor executive, and advocate Kabelo Nkhambule as a compliance officer.
In an Overview of the Prominent Barriers to Entry in SA’s Retail Banking Industry report, Nicholas Nhundu says competition in banking promotes financial inclusion, efficient functioning of financial intermediaries and markets; and financial stability.
“The leading South African retail banks can be said to enjoy market power derived from various factors including barriers to the entry and growth of smaller banks. The main barriers to entry and expansion include regulations and scale economies (including the need to establish a branch network), and the required financial backing,” reads the report.
However, in 2021, it still failed to obtain its permanent licence. According to Scopa chairperson Maggie Govender, the bank’s temporary licence, which expired last year, had been extended until June 30 this year.
Govender expressed doubt that the licence would be extended further but said it would not be shut down. She said it was important for Ithala to become a proper state-owned institution because “the idea is to provide accessible loans and banking services to the more disadvantaged communities. Their policies would be more in favour of the less advantaged section in our community, the ones who traditional banks … overlook or don’t give as many benefits.”
She said Vilakazi, “who seems to know his stuff”, told the MPLs that the bank had improved its income-per-rand, “although it is not where they want to be.”
“At this point, the June one (deadline) looks difficult but if they can get themselves on the right track, perhaps they could get a sympathetic hearing to look at how they could be allowed to proceed even if it means an extension. In terms of what they have been reporting, you can see that there are measures put in place (but) whether they would be able to do it by June, that is another story,” said Govender.
Govender said for the bank to acquire a permanent licence, it would need good governance, a properly constituted independent board, independent and properly constituted officials, and have a proper business plan.
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