Unpacking the R2. 2 billion guarantee dispute surrounding Ithala Bank
Ithala Bank is in a protracted legal battle with the South African Reserve Bank's Prudential Authority (PA) which has filed papers for the bank's provisional liquidation .
A dispute has ensued over theR2.2billion guarantee needed for IthalaBank, with the National Treasury (NT)warning that its primary task is to protectcustomers and not to bail out the bank.The Treasury described its stance asa standard approach it has applied insimilar situations to safeguard customersof other embattled financial institutions.
This statement follows revelations that the KwaZulu-Natal provincial govern-ment has approached the Treasury to enquire about the guarantee.
Senior management of Ithala recentlyinformed members of the provinciallegislature that, despite negotiations with the Treasury over the guarantee, it resolved to give the guarantee to the SA Reserve Bank instead of the province.
The Mercury understands that opinions differ on what the guarantee is for and how it should be utilised. The province believed it could find a commercial bank to take over the deposits of Ithala, and the guarantee was to help facilitate that process and guarantee that commercial bank, as it would have been taking over a liability.
Ithala Bank, owned by the provincial government, is facing liquidation following an application brought by the Prudential Authority via a Repayment Administrator (RA). Its functions have been taken over by the RA.
Dr Thulani Vilakazi, the Group CEO of Ithala Bank, recently briefed the finance portfolio committee about a letter from the Ministry of Finance indicating that the bank's liquidation must proceed.
This letter was a communiqué from the Treasury to the Reserve Bank. During the recent briefing, Vilakazi revealed that Treasury had addressed critical matters in a letter, including the guarantee sought by the province, which would have allowed customers access to their accounts.
Ithala Bank customers have not had access to their accounts for months.
'We had an engagement with the premier two weeks ago, and we learned that the minister of Finance had issued a guarantee of approximately R2.2bn;however, the guarantee is not in favour of the province but rather the Reserve Bank. In our interpretation of the communiqué issued by the minister, it is clear that the (letter recommends) that liquidation process must go ahead. They must liquidate our assets and pay out the depositors,' said Vilakazi.
KZN Finance Minister Francois Rodgers expressed awareness of the changing stance and noted that the guarantee now goes through the Reserve Bank.'As Treasury, we are not happy. The national ministry has continually changed the goalposts. Every day that passes, the people who have money with Ithala are the victims.
'Initially, the province proposed that the guarantee be given to the province in the form of a loan to secure the deposits in Ithala Bank, with Ithala and the province responsible for the interest on that loan. This arrangement would have allowed the commercial bank and Ithala to work together to ensure that depositors have access to their funds,'said Rodgers.
He said the court case to liquidate the bank should proceed, adding that they were not fearful of the process, as 'the bank's assets exceed its liabilities, which means that the bank cannot be liquidated'.
KZN Premier Thami Ntuli said the letter was directed to the Reserve Bank,and it was better placed to comment on its contents. However, he indicated thatthere were aspects that unsettled theprovince.'We are in the process of writing tothe minister asking for clarity on someof the things that we saw in that letter.'
The Treasury said: 'The framework under which the National Treasury pro-vides financial support to reduce the harm being suffered by ordinary depos-itors at Ithala as a consequence of the liquidation application is defined in pastpractice and formalised in law.'The National Treasury has applieda consistent approach to providingresources to depositors affected byfinancial sustainability issues faced by adeposit-taking financial institution. This action required that financial support beprovided to the depositors and not theshareholder.'
The National Treasury said this approach was consistent with the cov-erage afforded under the Deposit Insur-ance Scheme and support provided to the depositors of Habib Bank, African Bank, Ubank and VBS. In each case, the legal responsibility of the minister relates to acting in the interest of depositors. The Treasury made it clear that the action being taken was only in relation to depositors and not a bailout of the provincially owned entity.
'Ithala is owned by the KwaZulu-Natal Provincial Government, making it the financial responsibility of the KZN Provincial Government regarding any guarantees and/or financial injections.
"National Treasury focus is on ensuring that customers do not lose their hard-earned deposits and are not forced to go even longer without access to their funds,' it said.
THE MERCURY
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Daily Maverick
2 days ago
- Daily Maverick
Mixed news at the pump: fuel levy rises while prices drop
The Western Cape High Court has dismissed the EFF's urgent bid to block a controversial fuel levy hike—just as fuel prices dip. From midnight, levies rise by 16c (petrol) and 15c (diesel), despite constitutional questions. It's a pump paradox: taxpayers pay more, but pump prices briefly fall. In a ruling handed down yesterday, Judge Nathan Erasmus found that the EFF's application lacked urgency and did not meet the legal threshold for interim relief. The court did not engage with the broader constitutional challenge itself, which the EFF had previously framed in its initial filing as a possible Part B of its legal strategy. A tax fight rooted in Budget 3.0 The levy increase was announced in Finance Minister Enoch Godongwana's revised Budget 3.0, tabled in May following the political fallout and eventual withdrawal of VAT hikes in earlier budget versions. Treasury estimates the fuel levy will raise about R4-billion in the 2025/26 fiscal year. The EFF has argued that the use of Section 48(1) of the Customs and Excise Act to implement the fuel levy increase amounts to an unconstitutional bypassing of Parliament. Section 77 of the Constitution requires that all new taxes be passed via a money Bill through the National Assembly. Arguments on constitutional compliance Representing the EFF, Advocate Mfesane Ka-Siboto told the court: 'The fact that this has happened before does not make it lawful. Past practice is not a substitute for constitutional compliance.' He described the move as a case of 'taxation without representation.' The Treasury, represented by Advocate Kameel Premhid, countered that Section 48(1) had long been used lawfully to adjust fuel levy schedules. He argued the measure was an administrative amendment within an existing framework, not the introduction of a new tax requiring legislative approval. What this means for you For consumers, the fuel levy increase translates into higher petrol and diesel prices at the pump, effective immediately. This could lead to broader knock-on effects on transport costs, food prices and inflation, particularly for lower-income households who spend a greater share of their income on fuel-linked expenses. Treasury maintains the hike is necessary to address fiscal gaps left by the abandoned VAT proposal. The fuel levy increase will be offset by a decrease in fuel prices – which also kicks in on Wednesday, 4 June. The Department of Minerals and Petroleum Resources (DMPR) announced the following price decreases yesterday: Petrol 93 (ULP & LRP): ⬇️5cents/litre. Petrol 95 (ULP & LRP): ⬇️5 cents/litre. Diesel (0.05% sulphur): ⬇️ 36.9 cents/litre. Diesel (0.005% sulphur): ⬇️36.9 cents/litre. Commenting on the changes, the DMPR noted that over the last month, there has been a decrease in the average Brent Crude oil price from US$66.40 to US$63.95, largely on the back of continued global trade uncertainty, Parliament distances itself from the damage Parliament, which was cited in the court papers, but not the target of any relief, issued a brief statement after the judgment: 'Although cited in the application, no relief was sought against Parliament. Parliament's position throughout the proceedings was to abide by the outcome of the court process. Accordingly, Parliament will comply with the court's ruling.' Oversight loophole or legal mechanism? In its legal representations, Treasury has argued that Section 48(6) of the Act ensures Parliamentary oversight by requiring the amended tariff to be tabled after the fact. The EFF, however, contends this form of post-implementation tabling falls short of the constitutional threshold for public finance legislation. EFF's Part B remains unclear In a short statement on X after the ruling, the EFF said: 'We are committed to fighting the fuel levy increase in court and in Parliament.' However, the party did not explicitly confirm that it would pursue the Part B constitutional review. Whether the EFF returns to court or not, the broader legal and political debate over fiscal authority, oversight and the democratic control of taxation is likely to persist. DM
Eyewitness News
3 days ago
- Eyewitness News
Most stocks fall as Trump fires fresh volley in trade war
HONG KONG - Stocks mostly sank Monday after Donald Trump last week lobbed a fresh trade missile by doubling tariffs on steel and aluminium and accused China of violating last month's agreement to slash tit-for-tat levies. The US president's comments were followed by claims by his commerce secretary that Beijing had been slow to implement the deal, which helped rally markets last month and fanned hopes for a lasting detente between the world's top economies. Still, Treasury Secretary Scott Bessent - who last week warned negotiations with China were "a bit stalled" - said the US leader could speak with his Chinese counterpart Xi Jinping "very soon" in talks that could help break the impasse. The latest salvos from the White House came as it faces a legal battle after a trade court on Wednesday blocked Trump's "Liberation Day" tariff blitz, saying he had overstepped his authority with the across-the-board taxes. An appeals court gave the levies a stay of execution on Thursday but the wrangle could drag on, causing more uncertainty. Trump said Friday he would jack up steel and aluminium to 50 percent, from 25 percent, which he said "will even further secure the steel industry". He also claimed Beijing had "totally violated" last month's agreement with China to cut eye-watering tariffs for 90 days to hammer out a broader package. Later, Commerce Secretary Howard Lutnick told "Fox News Sunday" that Beijing had been "slow-rolling the deal". Chinese officials accused Washington of making "bogus charges and unreasonably accused China of violating the consensus, which is seriously contrary to the facts". The developments have thrown the trade war back into the spotlight after tensions had eased followinng the China detente and indications that governments were working on deals with US officials. "As we await whether the 90-day truce will result in a more permanent resolution, we are left wondering what may happen if progress stalls and the US and China are unable to make a deal," said Kai Wang, Asia equity market strategist at Morningstar. "Trump is already making headlines again on reimposing EU tariffs. "Should this happen with the EU or China, markets will likely crater again and will see much greater volatility given the heightened uncertainty with regard to global growth." Asian markets sank Monday as investors brushed off data showing the Federal Reserve's favoured inflation gauge cooled more than expected last month. Hong Kong dropped more than one percent, with property firms taking a heavy hit on worries over the future of New World Development after it deferred interest payments on some bonds. The firm is in the middle of a loan refinancing drive as it looks to raise more than US$11 billion from banks. Its struggles have revived fears about China's property sector as companies struggle to sell stock to help pay off their bulging debts. Tokyo, Sydney, Singapore, Taipei, Mumbai and Jakarta also fell along with Paris and Frankfurt. London, Seoul and Manila were marginally higher, while Shanghai was closed for a holiday. Oil prices surged after OPEC and other key producers hiked output for July but less than expected, while geopolitical fears were ramped up after Ukraine hit air bases deep inside Russia, raising concerns over an escalation of the three-year war. The dollar also retreated on concerns about the US economy as Trump continues to push a bill to extend tax cuts and slash welfare spending, which observers say will add trillions to the already gargantuan national debt. That has sent shivers through the Treasuries market, with yields pushing higher as investors seek out better returns for lending the government money. Worries about US debt led Moody's to lower the United States last top-ranking credit rating, warning it expects US federal deficits to widen dramatically over the next decade. Meanwhile, JPMorgan Chase chief executive Jamie Dimon voiced concern Sunday at the risk of a looming US debt market crisis sparked by Trump's policies. "It's a big deal. It is a real problem," Dimon told Maria Bartiromo on FOX Business Network's "Mornings with Maria" show, according to an excerpt of the interview that will air in full Monday. "The bond market is going to have a tough time. I don't know if it's six months or six years," he said. KEY FIGURES AT AROUND 0715 GMT Tokyo - Nikkei 225: DOWN 1.3 percent at 37,470.67 (close) Hong Kong - Hang Seng Index: DOWN 1.1 percent at 23,024.83 Shanghai - Composite: Closed for a holiday London - FTSE 100: UP 0.2 percent at 8,789.97 Euro/dollar: UP at $1.1404 from $1.1349 on Friday Pound/dollar: UP at $1.3530 from $1.3463 Dollar/yen: DOWN at 143.19 yen from 143.97 yen Euro/pound: DOWN at 84.28 pence from 84.30 pence West Texas Intermediate: UP 2.9 percent at $62.58 per barrel Brent North Sea Crude: UP 2.5 percent at $64.34 per barrel New York - Dow: UP 0.1 percent at 42,270.07 (close)
Daily Maverick
4 days ago
- Daily Maverick
EFF vs fuel levy increase — court challenge tests legality of fiscal decisions
The EFF has filed an urgent court bid to block Finance Minister Enoch Godongwana's fuel levy hike, arguing it is irrational, economically harmful and unlawfully implemented. This is not just the EFF showing commitment to its stance against the increase, but a relatively novel legal precedent that could have far-reaching implications. A last-minute legal bid On Thursday, 29 May, the EFF filed papers in the Western Cape Division of the High Court to block a fuel levy increase announced eight days earlier during the Minister of Finance's Budget 3.0 tabling. The case makes an unusual use of Rule 53 of the Uniform Rules of Court — a procedural mechanism regularly used to challenge administrative decisions — to challenge a fiscal measure introduced by the Treasury in Budget 3.0. 'We took this action after repeated efforts to caution the minister and appeal to his conscience failed,' said the party in a statement issued on the same day, stating that an increase without a Money Bill 'risks the entire national Budget being declared invalid by the courts'. Though it hasn't sparked the same political uproar as the aborted VAT hike, the fuel levy increase is just as important, as a fuel increase touches aspects of almost all supply chains, increasing costs across every facet of life. As economist Dawie Roodt told Daily Maverick, '… in terms of the effect on the poor, that is pretty much the same as the VAT increase'. The fuel levy increase — 16c per litre for petrol and 15c for diesel — is scheduled to come into effect on 4 June. The EFF is seeking urgent relief before this happens. The EFF Treasurer-General, Omphile Maotwe, told Newzroom Afrika the Treasury intended to gazette the increase on 3 June, 'to allow us no window or opportunity to interdict', hence the urgent application. The EFF's legal logic The application has two parts: Part A seeks an urgent interdict halting the increase and Part B calls for a full review and potential nullification of the decision, with the EFF arguing the increase must be reviewed in light of worsening inflation, stagnant wages and the fallout from the abandoned VAT hike. While it's true that the fuel levy is a regressive tax, Roodt argues that the Treasury's hands are largely tied regarding other measures to generate revenue. 'South Africa's tax burden is already dramatically redistributive. You can't make it more so,' he said. In its founding affidavit, the EFF argues that the fuel levy hike is procedurally flawed and substantively irrational. There was no consultation with Parliament, no socioeconomic impact assessment and no engagement with affected sectors. The party says the decision punishes low- and middle-income households already buckling under cost-of-living pressures. While the minister has statutory power to adjust the levy, the EFF argues that using this mechanism — without oversight or legislative process — amounts to executive overreach. The party called the increase 'yet another demonstration of the anti-black, anti-poor, neoliberal Budget the ANC government continues to impose on the people of South Africa'. No word yet from Treasury By the time of publication, the National Treasury had not responded to detailed questions from Daily Maverick about whether a socioeconomic impact study had been carried out, whether consultations with industry had occurred, and what the Treasury would do if an interdict were granted. This article will be updated once a response is received. Minister in the Presidency Khumbudzo Ntshavheni did not discuss the fuel levy, but defended the broader Budget at a briefing to the media on Friday, 30 May. 'This pro-poor Budget means [that] on every rand, 61 cents of consolidated, non-interest expenditure funds will be spent on free basic services … social grants for those in need.' A silent tax indeed The fuel levy is often called a 'silent tax' — embedded in pump prices and not itemised like VAT. Its revenue flows into the National Revenue Fund and is not earmarked for roads or transport. Between 2012 and 2022, the general fuel levy rose from R1.77 to R3.93. It now accounts for about 6-7% of pump prices. The 2025 increase is expected to raise R2.9-billion. Filling a 50-litre tank will cost about R8 more — a cost that ripples through logistics, transport and food prices. Unlike some OECD countries, South Africa lacks fuel subsidies or robust public transport, making the levy a heavier burden for poor households. Can fiscal decisions be challenged in court? Yes, as the EFF and DA's challenge of the VAT hike showed clearly — but this time the mechanism is different. That case primarily rested on constitutional and procedural grounds. In this matter, the EFF is invoking Rule 53, seeking a review of the minister's decision. The rule requires the state to produce the full record of decision-making, allowing the applicant to supplement their case. Rule 53 is usually applied to administrative actions — permits, suspensions, authorisations — and not budgetary policy. The stakes next week The urgent interdict will be heard on Tuesday, 3 June. If granted, the levy will be paused pending the main review. If refused, it may take effect as scheduled, making a later review moot. Should the court ultimately side with the EFF, it could invalidate the hike retrospectively, forcing the Treasury to re-table it through proper legislative channels. The ruling could also set a legal precedent, inviting future litigation over fiscal instruments previously seen as untouchable. Who really pays? Much of South Africa's fiscal debate is cloaked in specialised language: 'consolidation paths', 'debt stabilisation', 'medium-term frameworks', but the impact is direct: it's on you and I. Fuel taxes inflate the cost of moving people and goods, from taxis to tractors. The EFF's challenge isn't likely to unravel the Treasury's broader strategy, but it could set a strong precedent for how fiscal policy can be challenged; at its core, the case asks who gets to hold the pen when new taxes are imposed, and if the courts should step in if Parliament does not. DM
