Ithala’s provisional liquidation may result in the closure of 257 000 depositors’ accounts while legal proceedings are under way. Photo: Ithala
The Prudential Authority’s decision to file for the provisional liquidation of Ithala will result in the closure of the 257 000 depositors’ accounts while court processes are under way.
The authority, which is responsible for the prudential regulation of banks and insurance companies within the South African Reserve Bank, said that filing for provisional liquidation is in the best interests of Ithala’s depositors, because “the appointed liquidator will be able to utilise insolvency legislation to recover and distribute their funds to the extent possible”.
The papers were filed at the Pietermaritzburg high court on 16 January and comes after the Repayment Administrator, appointed by the Reserve Bank, established that Ithala is “technically and legally insolvent” and exposes depositors to potential loss of their deposits.
“Moreover, Ithala did not provide sufficient capital commitments or secure a legally binding renewal of the guarantee over its deposits from its shareholder, the provincial government of KwaZulu-Natal,” the Reserve Bank said in a statement.
Ithala was never granted a banking licence, but rather an exemption by the finance minister, Enoch Godongwana, to operate as an entity to receive deposits while it regularised its operations.
The exemption was temporary and subject to certain conditions. Ithala had to ultimately obtain a banking licence in terms of the Banks Act or cease all its deposit-taking activities.
In July 2022, the Prudential Authority issued a final exemption notice to Ithala to afford it a final opportunity to “regularise its deposit-taking activities, warning that non-compliance would lead to withdrawal of the exemption”.
“The final exemption notice lapsed on 15 December 2023, with Ithala failing to meet all the conditions outlined in it,” the Reserve Bank said.
Ithala was ordered to cooperate with the Repayment Administrator, which is responsible for Ithala’s deposits and appointed by the Reserve Bank, but failed to do so.
In response to the legal action, Ithala is calling on the government to “neutralise the actions of an arrogant and callous Repayment Administrator”.
In a statement issued on 17 January, Ithala said the Prudential Authority initiated the liquidation proceedings before any formal liquidation order was issued by the courts.
“The grounds for this action are fundamentally flawed, frivolous and based on erroneous calculations. Ithala is solvent with assets that far exceed its liabilities. Moreover, the Auditor General of South Africa has given Ithala a clean audit report for the year ended 31 March 2024 and confirmed its going concern status,” it said.
But from 31 March 2008 to 31 March 2024, Ithala’s losses amounted to R520 million. The Reserve Bank noted that capital injections were not able to absorb losses, and it hindered capital deployment to grow Ithala’s balance sheet. “Ithala has a high cost structure relative to its nature, size, complexity and risk profile,” the bank said.
Ithala said it had discussions with the Prudential Authority to secure its ability to continue operating, but that it will be taking immediate action against the appointed Repayment Administrator (RA).
“Our legal team will be filing an urgent interdict to contest the RA’s orders. In parallel, Ithala’s shareholder, the KwaZulu-Natal provincial government, has reached out to Minister of Finance Enoch Godongwana, advocating for a temporary solution that would allow deposit transfers to another bank until a permanent licensing framework is put in place for Ithala.”
Ithala cautioned that its closure would result in 400 job losses and affect vulnerable people who rely on it for essential financial services, including South African Social Security Agency grants.
The treasury assured depositors that their money will be protected by a government guarantee, subject to the conclusion of the necessary technical work. It advised depositors to “to urgently make alternative banking arrangements, they can be assured that we will endeavour to secure their funds as far as is possible”.
The KwaZulu-Natal treasury said it supports Ithala’s legal action to challenge the Repayment Administrator’s actions
