The South African Social Security Agency (SASSA) has urged beneficiaries who bank with Ithala not to panic, reassuring them that the Agency is working closely with First National Bank (FNB) and relevant stakeholders to ensure that all beneficiaries will continue to receive their grants as usual.
This reassurance follows the decision by the Prudential Authority (PA) to pursue Ithala’s provisional liquidation.
The PA filed a notice of motion on 16 January seeking the High Court’s approval for liquidation. Since then, the PA and repayment administrator Johan Kruger have faced significant criticism, including claims of misconduct from the uMkhonto weSizwe (MK) political party.
The liquidation process has resulted in about 257 000 depositor accounts being frozen, including the accounts of more than 65 000 social assistance beneficiaries, such as recipients of the old-age, Social Relief of Distress, care-dependency, child support, disability, and foster-care grants.
Although National Treasury has guaranteed the funds of affected depositors, it has advised them to make alternative banking arrangements temporarily.
On 24 January, the MK Party alleged that Ithala’s client database had been unlawfully transferred to FNB and claimed that an FNB call centre in Gauteng was aggressively targeting Ithala clients. According to the party, the call centre aimed to open 10 000 accounts a day. It allegedly sent SMS messages and directed clients to collect debit cards from FNB branches in KwaZulu-Natal.
However, SASSA has clarified the situation. In a statement, SASSA explained that National Treasury reached out to the Banking Association South Africa (BASA) to find support from its members, in particular, for social grant beneficiaries. In turn, BASA contacted its member banks to identify one or more institutions capable of swiftly opening new accounts for all grant beneficiaries banking at Ithala.
“National Treasury informed SASSA that in the interim, out of all the banks that were approached by BASA, FNB offered emergency assistance to open accounts to facilitate payment for SASSA clients who are currently banking at Ithala,” SASSA stated.
The Agency said that beneficiaries who have not been able to open a new bank account will receive an account with FNB in the interim “until the clients are afforded an opportunity to provide SASSA with the details of their preferred bank”.
This process is estimated to conclude after three months.
Sizwekazi Mdingi, FNB’s head of public relations and external communications, explained the bank’s role.
“FNB can confirm that it has been requested by National Treasury to support Ithala Bank’s SASSA customers with bank accounts, in view of the bank’s liquidation process,” Mdingi said.
“In response, FNB has opened accounts for Ithala account-holders who are grant recipients, to ensure that SASSA can deposit their grants into an active account. FNB’s main priority in this regard is to ensure that SASSA grant-holders have access to their grant and are not negatively impacted by the Ithala process, ahead of the next SASSA payout date.”
Continued grant access
Most SASSA beneficiaries who banked with Ithala are in KwaZulu-Natal, with smaller numbers in Mpumalanga, Eastern Cape, Gauteng, Free State, North West, and Western Cape.
SASSA has assured that the interim arrangement with FNB will ensure beneficiaries continue to receive their grants on time.
“Only, Covid-19 Social Relief of Distress beneficiaries could be affected by this unexpected change. In terms of our processes, we anticipate that their January grant payments could be delayed. A special payment run will happen as soon as possible to remedy this,” SASSA noted.
FNB has communicated with SASSA beneficiaries to activate their new accounts and collect their bank cards from branches between 28 January and 4 February. Beneficiaries will have to present a valid form of identity to collect their cards.
The Agency added that joint outreach efforts will be conducted by SASSA and FNB in rural areas to minimise travel inconvenience for clients.
Although SASSA emphasised it is not endorsing FNB as a preferred bank for grant recipients, it acknowledged the bank’s willingness and ability, as a participant in the National Payment System, to provide emergency assistance when another participant faces challenges.
“Over the course of the next three months, all clients will have the choice to change to their preferred bank. SASSA will ensure that sufficient resources are available to support clients with this,” SASSA said.
Ithala’s legal troubles
Although often referred to as a bank, Ithala SOC Limited was never granted a banking licence. It operated under a temporary exemption from the Banks Act and struggled for more than a decade to secure a permanent licence. This exemption expired in December 2023, leaving Ithala unlawfully holding deposits totalling R2.47 billion.
On 24 October 2024, the PA issued a directive instructing Ithala to cease accepting deposits and to repay all existing deposits within 14 business days. To date, Ithala has not complied with this directive.
According to the founding affidavit accompanying the PA’s notice of motion, the primary reason for seeking Ithala’s liquidation is its insolvency under the Banks Act. The PA asserts that Ithala is insolvent under section 83(3)(b) of the Act because of its failure to comply with directives and instructions to repay deposits.
This situation has resulted in two separate legal proceedings scheduled for this week: one on 28 January to address an interdict against the closure of accounts, and the PA’s liquidation case, set for 30 January. However, the hearing for the interdict has been postponed, with no new court date yet determined.
The KwaZulu-Natal Department of Economic Development, Tourism, and Environmental Affairs, along with Ithala, requested Judge Muzikawukhelwana Ncube to preside over the urgent interdict, initially scheduled for hearing on 28 January.
However, in a statement, the department noted that the Registrar of the High Court in Pietermaritzburg advised that Judge Ncube is on leave and will return to duty on 17 February.
As a result, the department approached the Judge President to assign another judge to the case. On 27 January, the Judge President issued a directive removing the matter from the court roll.
A meeting has been scheduled for 29 January with the respective Senior Counsel to determine the next steps.
KZN Treasury defends Ithala
KwaZulu-Natal Finance MEC Francois Rodgers is likely particularly disappointed by the postponement of the hearing, because he has been vocal in opposing the PA’s application for the provisional liquidation of Ithala.
In a statement issued on 26 January, the KwaZulu-Natal Treasury announced it had submitted legal documents supporting Ithala’s case to “thwart” the provisional liquidation application. The KZN Treasury argues that Ithala does not face solvency or liquidity issues.
According to the KZN Treasury, as of 31 October 2024, Ithala’s total assets stood at R3.25bn, while total liabilities amounted to R2.93bn, leaving Ithala with a positive net asset position of R316 million.
The PA disputes this, highlighting that Ithala incurred cumulative losses of R520m between 31 March 2008 and 31 March 2024. The PA stated that “committed capital injections have merely absorbed losses, hindering capital deployment to grow Ithala’s balance sheet. Ithala has a high-cost structure relative to its nature, size, complexity, and risk profile.”
The KZN Treasury noted that it intended to present additional arguments in court on Ithala’s functionality, but these will have to wait until the interdict case is back on the court roll.
In the meantime, it’s likely that Ithala and the PA’s legal teams are working tirelessly in preparation for Thursday’s court date – assuming it proceeds as planned. As the PA cautioned, “Court processes can sometimes change or be delayed, so these dates may change.”
Is it okay if our grand parents don’t get paid because of the problem of ithala Bank?
I didn’t receive a child support grant because I wasn’t know that I need to go to FNB so what can I do now