Ithala Bank faces ruin

Ithala Bank is sinking under the weight of financial mismanagement, dodgy loans worth hundreds of millions of rands, extravagant spending and failure to comply with at least three laws, a series of damning reports show.

The beleaguered government lender, funded by KwaZulu-Natal taxpayers, is meant to uplift the province's poor by providing loans to small businesses and entrepreneurs.

Instead it has been described by opposition leaders as a piggy bank for the politically connected after lending small fortunes to companies linked to prominent figures.

These include Prince Sifiso Zulu, KwaZulu-Natal premier Zweli Mkhize, the bank's suspended CEO and former provincial treasurer Sipho Shabalala and ANC MP Sizani Dlamini-Dubazana.

Dlamini-Dubazana was accused of using the money she got to buy President Jacob Zuma's home in Johannesburg. But she said the loan paid for a hotel in Johannesburg. Asked why KwaZulu-Natal taxpayers should fund a Gauteng business, the bank said: "Ms Sizani met all the requirements needed by Ithala to grant the loan."

More bigwigs are linked to companies contributing to this year's R322-million write-off revealed in the latest auditor general's report on Ithala. They include KwaZulu-Natal health MEC and top ANC member Sibongiseni Dhlomo and IFP MP Alfred Mpontshane.

The financial statements signed off by Shabalala show loans of R140-million were granted to Ithala management, with R86-million in arrears. Asked to justify loans to staff, he said through his spokesman Vuyo Mkhize: "At the time these loans were granted, related-party funding was allowed in terms of Ithala's lending policy."

The bank also spent R1.2-million on World Cup tickets.

"The decision to participate in the World Cup hosting programme for matches taking place in KwaZulu-Natal was taken by the board of Ithala in early 2009," said Mkhize. "When management became aware of the poor financial position that Ithala was in, it launched numerous attempts to pull Ithala out of its World Cup hosting programme commitments. Sadly, these were all in vain."

The Auditor-General's report shows 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.

The latter red flag relates to Shabalala's role in promoting contractor Bhombe Chitey for a R169-million contract to build and maintain schools without going to tender.

Union federation Cosatu, the SA Communist Party and the DA were outraged when provincial finance MEC Mike Mabuyakhulu gave Shabalala a written warning for failing to follow tender procedures when scores of staff had been fired for far less.

In a joint statement, Cosatu and the SACP said deserving companies had been ignored when the tender was irregularly awarded. Mabuyakhulu compromised himself by intervening prematurely, they said.

"How can you take a guy who plunged the province into the red as treasurer and put him in charge of a bank?" said provincial SACP general secretary Themba Mthembu.

The province's DA leader, John Steenhuizen, said the disclosures "confirmed what we have been saying all along - that Ithala is a piggy bank to fund the political elite of KZN".

"Every loan given to a dodgy comrade could have gone to a legitimate business," he said.

Shabalala has been accused of keeping under wraps another damning forensic report completed by KPMG last year.

It apparently looked into large loans to companies linked to politicians, including Dolphin Whispers and Zee Net, for developments that collapsed after receiving a total of R104-million. Prominent figures linked to the deals include Nelson Mandela's granddaughter Nandi Mandela.

Shabalala denied a cover-up, saying the report pre-dates his time at the bank. Two criminal cases have been opened, he said, but declined to name the companies involved.

Shabalala was suspended from Ithala over a R200-million scandal involving Intaka, a company owned by Uruguayan Gaston Savoi, one of whose partners was Shabalala's wife.

In August Shabalala's assets were attached in raids in Cape Town, Pietermartizburg and Durban - which also netted a Ferrari and private jet belonging to Savoi. Intaka allegedly supplied provincial health departments with water and oxygen plants at inflated prices.

Savoi was arrested with four other people, including three former provincial health department officials, on charges of fraud, money laundering and corruption.