The Prudential Authority's watchful eye on SA's smaller banks
The Prudential Authority (PA) was established on April 1, 2018, as part of the "Twin Peaks" model for financial regulation in South Africa.
Twin Peaks is a financial sector regulatory framework that divides regulatory functions between two independent authorities: the PA and the Financial Sector Conduct Authority with the aim of enhancing financial stability and consumer protection.
A case in point in terms of risk was the African Bank collapse in August 2014 due to liquidity problems, which mostly came because of excessive unsecured lending that placed the bank under curatorship, effectively splitting it into a "bad bank" and a "good bank". The so-called good bank has subsequently become profitable.
African Bank's collapse sped up the introduction of the new oversight regime.
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IOL News
3 days ago
- IOL News
Prudential Authority: Ithala Bank's survival must respect the rule of law
The future of Ithala bank continues to argued in court Image: Doctor Ngcobo / Independent Newspapers The need to preserve the existence of Ithala Bank cannot override the rule of law, as Ithala was always required to comply with the Banks Act; this was the argument heard by the three Judges (full bench) at the Durban High Court on Friday. This is because the Ithala's Repayment Administrator (RA) and the South African Reserve Bank's Prudential Authority (PA) are appealing the Pietermaritzburg High Court decision that the entity can continue to conduct its business. Ithala held an exemption from the PA, which allowed it to take deposits. That exemption expired in December 2023. In January, the PA filed for Ithala's liquidation, and Johannes Kruger, the RA, instructed Absa Bank Limited to freeze all Ithala's accounts following the expiration of the exemption. However, Ithala continued to accept deposits and failed to assure the PA that it would cease its deposit-taking activities. 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Next Stay Close ✕ As a result of Kruger's instruction, Ithala's day-to-day running effectively stopped on January 16, 2025. Ithala took this to the Pietermaritzburg High Court, and Judge Muzi Ncube interdicted and restrained Kruger from issuing any instructions. He said, pending the outcome of the liquidation appeal, Ithala could continue with its day-to-day running. T he Judge also stated that Kruger lacks operational and management control over Ithala's day-to-day operations. Moreover, Judge Ncube said if Ithala was forced to close its doors, members of the public would not be able to access their funds, and those who are South African Social Security Agency (Sassa) recipients would not be able to access their grants. He said the bank could be sued by unpaid service providers, and it could be evicted from its lease premises. Additionally, the Judge granted PA and Kruger leave to appeal his ruling at the Supreme Court of Appeal (SCA) and made an order for his ruling to remain in force, pending the appeal. In written arguments heard by the full bench, Kruger said Ithala should not frustrate his ability as RA to take over the operations and its assets to achieve the objective of his appointment. On December 18, 2023, the PA appointed Kruger as the RA. His appointment related to the repayment management of deposits collected unlawfully by Ithala. He asked for the full bench to set aside the orders made by Judge Ncube to give the bank the green light to function. 'If depositors will suffer harm and Ithala also claims that it will suffer harm, for purposes of the interim interdict, this court will weigh the balance of convenience,' the PA argued. The PA further argued that, according to sections 18(1) and 18(3), Judge Ncube should have rejected Ithala's application if it meant that depositors would also face irreparable harm, as this would violate their rights. 'Granting the orders would also go against the clear responsibilities outlined in the Banks Act, which are designed to protect depositors' interests,' read the arguments. In its response, Ithala said both PA and Kruger believe that they have the effect of suspending the constitution of the country, the basic conditions of the Employment Act 75 of 1997, the Companies Act of 71 of 2008, and the Income Tax Act 58 of 1962, amongst others. 'They believe they can unilaterally decide to halt the operations of a State-owned company and cancel all its contracts with its employees and service providers without a court order in circumstances where there is a pending litigation before the Courts over the extent of their powers,' Ithala said in its written arguments. It added that on January 20, 2025, Kruger, in defiance of an existing court order, unilaterally determined that salaries and benefits of Ithala employees would not be paid. Ithala warned that if the full bench rules in favour of PA and RA, the bank will shut down before the SCA appeal on its liquidation is heard. The provincial government, which has joined the fight in support of Ithala, said the findings of Judge Ncube were correct. 'Ithala has been placed in limbo through the conduct of Kruger,' it said.
TimesLIVE
4 days ago
- TimesLIVE
Ithala court battle rages on
Three judges in KwaZulu-Natal on Friday heard arguments which could determine the fate of Ithala SOC and about R2.6bn it holds through 'deposits' it took when it allegedly unlawfully operated as a bank. Ithala, a financial agency, held an exemption from the SA Reserve Bank prudential authority (PA) which entitled it to take deposits, many of which were South African Social Security Agency (Sassa) pensions. The exemption expired in December 2023. The PA has alleged the financial institution continued taking deposits up until January 2025. The PA appointed a repayment administrator (RA), Johan Kruger, to take control of Ithala and secure the deposits for repayment and redistribution. What followed was a flurry of litigation over his powers, including an application by the KwaZulu-Natal government seeking to review and set aside Kruger's appointment on the basis it was unlawful and an application by Kruger for the liquidation of the provincial government-owned entity which has been in existence for 40 years. At the heart of the dispute, which came before the full bench, sitting in the Durban high court on Friday, is an order granted in November last year by Pietermaritzburg high court judge Muzi Ncube, who ruled effectively Kruger had overstepped his powers by freezing all of Ithala's bank accounts, held at Absa Bank, not only those containing the deposits. He ordered Absa Bank to immediately unfreeze the accounts. In May this year, Ncube granted the PA and Kruger leave to appeal this ruling to the Supreme Court of Appeal (SCA). This would ordinarily have the effect of suspending the ruling. However, Ncube, at Ithala's behest, granted an order in terms of the Superior Courts Act that his ruling remain in force, notwithstanding the pending appeal. It is this order the PA and Kruger are seeking to set aside. Ithala is opposing the application, arguing if granted it will be the end of the agency. 'Ithala is not some pyramid scheme that will disappear with depositors' money, it is a government-backed business. 'They are asking the court to condone and enable their continued unlawful self help,' it argued in papers. Ncube ruled Kruger could not involve himself in the normal operations of Ithala, did not have operational and management control over the day-to-day operations and affirmed the board continued to hold management powers. He said pending the final outcome of the liquidation application, Ithala was entitled to continue conducting its non-deposit taking business, pay salaries and related expenses, rent for properties it was leasing and other bills. The PA and Kruger believe the order will be overturned by the SCA because Kruger was acting in terms of the Banks Act. In a written argument, the PA said Ncube, when granting the enforcement order, had failed to consider the 'irreparable harm that would be suffered by depositors, creditors and the public interest' and the probability of a 'run' on deposits. Such an order could only be granted in exceptional circumstances, they argued. 'The court failed to appreciate it was common cause that Ithala had co-mingled its operational bank accounts relating to employees' payroll, pensions, medical aid, disability insurance and the UIF and other operational expenses, and those accounts that were used for taking deposits. 'The court had also impermissibly relied on a non-existent guarantee issued by the minister of finance and contended it would insulate depositors from a run on deposits. 'The purported guarantee was unlawful as it was not issued in terms of the Public Finance Management Act.' Any harm to Ithala was due to its own unlawful conduct, the PA said. Kruger said not only was he entitled to take control of the funds to prevent their dissipation, he was required to by law. He said in spite of the lapse of the exemption notice, Ithala had repeatedly refused to give an undertaking that it would immediately cease taking deposits and he had been forced to approach the court to enforce this. 'It is patently clear, even on Ithala's own version, that until January 16 2025, it continued to receive deposits unlawfully and paid lip service to the demands made by the PA or the RA. 'It is also clear the reason for this is it would in all probability lead to the demise of Ithala. If they stopped their unlawful conduct, it would be the end of their banking services and the entity itself.' Kruger, in his written argument, said the PA had directed and demanded Ithala to repay more than R2.4bn within 14 business days. 'The response was the PA and RA were aware it is practically impossible for Ithala to repay the money because Ithala doesn't hold enough cash to pay more than R2.4bn. 'It argued no other bank holds liquid cash equivalents to repay its depositors within 14 days. 'The comparison to other banks is without merit. Ithala is not a bank and has not been authorised to conduct the business of a bank. It was directed in December 2023 to stop taking deposits. 'It is common cause two directives to repay have been issued by the PA, and Ithala has not repaid the deposits and is not in a position to do so. 'This led to the liquidation application. On the common cause facts, the liquidation is a foregone conclusion. It is commercially insolvent on its own version.' Ithala, in its written argument, said the PA and RA seemed to believe they could act contrary to the constitution, employment and other laws. 'They also believe they can unilaterally decide to halt the operations of a state-owned company and cancel all its contracts with its employees and service providers without a court order when there is pending litigation over the extent of their powers.' Ithala said the liquidation application had been brought as a matter of urgency with only one day's notice in January 2025. 'More than five months later, it has not been set down and is unlikely to be heard this year. So much for urgency. 'It is designed to destroy Ithala and bears no relation to the protection of depositors. 'They also want the court to disbelieve the minister of finance when he states publicity and repeatedly he will guarantee all deposits. They are driven by their desire to see Ithala fail.' Ithala said if it was forced to close its doors, its customers, who include poor Sassa grant recipients, will not be able to access their grants. The KwaZulu-Natal government, which is the sole shareholder of the Ithala Development Finance Corporation, has also entered the fray in support of Ithala. In its written argument it said Ncube had correctly found 'exceptional facts' to enforce his order because Ithala had been 'placed in limbo through the conduct of Kruger'.
IOL News
14-07-2025
- IOL News
Pityana prepares for another legal showdown with Absa and SA Reserve Bank
Sipho Pityana said the judgment is a win not just for me, but for the integrity of our financial system and the rule of law in South Africa. Former Absa board member Sipho Pityana is bracing for another bruising battle with the bank as well as the South African Reserve Bank (Sarb) in the court of law in his fight for reform in the banking sector. This comes as Absa and the Sarb's Prudential Authority (PA) both filed applications for leave to appeal the Pretoria High Court ruling last month that vindicated Pityana in his claim that the PA broke the law in interfering with his possible nomination as Absa chair in 2021. The PA controversially consulted with third parties regarding his suitability for the chairperson role, particularly following inquiries into his resignation from AngloGold Ashanti amid allegations of sexual harassment - claims he firmly denies. The court found that the PA acted unlawfully by adopting an informal process to review Pityana's nomination, as prescribed by the regulations in place under the Banks Act. Pityana's legal battle began when he sought a declaratory order against the PA, claiming they had operated outside the legal framework established for such considerations. He did not seek any relief against Absa. However, Absa said it would take the judgment on review. 'After careful consideration of the 13 June 2025 High Court judgement, Absa will respectfully seek leave to appeal. It should be noted that the Court made no findings against Absa, save to order that it was jointly liable with the Prudential Authority for the applicant's costs,' Absa told Business Report on Monday. The court's judgment, delivered by Judge Flatela Luleka last month, established that the PA had indeed overstepped its bounds by failing to follow established protocols, thus denying Pityana the opportunity to contest objections to his appointment. 'The [PA] acted unlawfully and in excess of its power per the Banks Act 94 of 1990 by engaging in an informal process with the [Absa Group] and [Absa Bank] in connection with the nomination of [Pityana] as chairperson of the [Absa Group] and [Absa Bank's] board of directors, and in particular by notifying the [Absa Group] and [Absa Bank] of its objection, alternative intention to object to [Pityana's] nomination,' read the judgment. PA spokesperson, Thoraya Pandy, also confirmed on Monday that the PA is going back to court on the matter. 'Yes you are right, we have lodged an appeal. The documents are in the public domain and you can reach out to the courts for it, as we do not share it directly to anyone,' Panday said. Speaking with Business Report last month, Pityana said the case had raised serious concerns regarding the independence of the Sarb and also urged for a formal investigation into what he describes as "cosy relationships" between key figures in the banking sector. He said the judgement raised a number of new questions in terms of transparency, good governance and ethical conduct in the financial sector's regulatory environment, as well as accountability when laws are broken. On Monday, Pityana said there was nothing really surprising about these applications for leave to appeal. 'The more curious one is why Absa is appealing the judgement when no finding is made against them. Indeed, why are they spending so much resources on a case in which they are cited only as an interested party. It already speaks to collusive behaviour,' Pityana said. Pityana's legal battle extends beyond this ruling; he is also contesting his removal from the Absa board through separate legal proceedings. BUSINESS REPORT
