Calls for Ithala Bank to close

2013-10-31 00:00

THE Auditor-General (A-G) has painted a damning picture of Ithala Bank’s financial position, saying it had incurred a net loss of R24,4 million in the last financial year.

The latest dismal report for the bank comes four years after Economic Development and Tourism MEC Mike Mabuyakhulu said he would ensure that loans given by the bank would be repaid.

Opposition parties this week called for the bank to be closed or for it to be incorporated under the Economic Development and Tourism Department.

But Mabuyakhulu shot down calls from the opposition parties to close the bank.

“It plays a critical role in the development of the economy of this province in redressing the challenges we face. Ithala is able to finance small, micro and medium enterprises that otherwise could not be financed by other banks,” he said.

On Tuesday, the Ithala board and officials appeared before the standing committee on public accounts (Scopa) to consider the A-G’s report for 2012/13.

The report, tabled before Scopa, also revealed that the bank’s IT system had the potential to be manipulated by anyone who has access and for paper trails to be easily erased.

The report found Ithala had no approved information technology disaster recovery plan in place; administrator access to IT was inappropriately assigned; administrator activities were not monitored; and audit trails and the systems log could be erased by privileged users.

The A-G found that Ithala had incurred losses amounting to R24,4 million for the year ended in March 2013.

The bank was bailed out with R105 million in March 2013 by its parent company, Ithala Development Finance Corporation (IDFC), to help meet its obligations in the course of its business.

It was also found that the financial statements of IDFC showed material losses amounting to R75,9 million as a result of impaired loans.

“This included a R53 million write-off of capital and a further R22,9 million relating to non-recoverable revenue,” the A-G added.

Responding to questions on the R24,4 million loss, CEO Yvonne Zwane said the board injected R105 million to bring Ithala bank back to profitability. She said the bank was now losing less money year on year.

Zwane’s explanations did not convince committee members, who were adamant that the bank was sinking and taxpayers’ money was being pumped into a bottomless pit.

“Nobody tells us the measures put in place to try to recover the little that might be left,” said the IFP’s Lindani Mncwango.

The DA’s Sizwe Mchunu said closure of the bank should be considered in light of its losses. “We owe it to the people of KZN to save them millions of rands. We need to explore closing down Ithala,” he said.

But Zwane said the bank had a legacy of giving out bad loans and it would take time for it to sort this out.

She said improvement in the fortunes of Ithala would not be seen in this current year.

Mabuyakhulu said while there were weaknesses identified by the A-G, there was significant improvement made in the affairs of the bank. “There are areas that we are not to fix today or overnight, they require a little bit of time. We are very happy where the institution is heading and steps it is taking ,” he said, adding that management was responding to issues raised in the audit report.

History of Ithala bank’s dealings and violations:

IN November 2009, Economic Development MEC Mike Mabuyakhulu announced that the bank would no longer grant loans to senior government officials, public office bearers, politicians, members of the board of Ithala and their relatives after continuous flak for doing this.

The Witness earlier reported previous recipients who benefited from loans include May Mkhize (the wife of former premier Zweli Mkhize) and Ntombi Shabalala (the wife of former provincial treasury head and Ithala group chief executive Sipho Shabalala).

In October 2010, the Times Live reported the Auditor-General’s report showed Ithala violated three laws: the Banks Act, for failing to meet the minimum 10% capital adequacy ratio; the Companies Act, for failing to hold an annual meeting, and the Public Finance Management Act, for flouting tender rules.

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