By Suren Naidoo.
The Prudential Authority within the South African Reserve Bank (Sarb) has applied to the Pietermaritzburg High Court for the provisional liquidation of beleaguered KwaZulu-Natal-headquartered provincial ‘bank’ Ithala SOC Limited.
The authority confirmed the move in a statement on Thursday, saying it “believes this action is in the best interests of the approximately 257 000 depositors of Ithala, as the appointed liquidator will be able to utilise insolvency legislation to recover and distribute their funds to the extent possible”.
Following the announcement, National Treasury was quick to try to assure depositors that their money was safe.
Government guarantee
“We understand that depositors may be concerned about the safety of their funds. The National Treasury wishes to assure the retail depositors of Ithala SOC Limited that their deposits will be protected by a government guarantee, subject to the conclusion of the necessary technical work,” it said in a statement.
“This work includes providing a government guarantee to one or more banking institutions to ensure the accounts of depositors can be migrated timeously and funds can be made available.
“We are working closely with the Prudential Authority to ensure an orderly process that protects depositors’ interests,” it added.
“While depositors will need to urgently make alternative banking arrangements, they can be assured that we will endeavour to secure their funds as far as is possible. The National Treasury will provide further details about the process for accessing guaranteed funds following the court’s decision on the liquidation application,” it said.
Ithala, a provincial ‘bank’ that started off as a development finance agency over 65 years ago and falls under the KZN Provincial Government, has been at loggerheads with the Prudential Authority over the past two years around securing a banking licence.
The Prudential Authority, which is responsible for the prudential regulation of banks and insurance companies within the Sarb, reiterated on Thursday that it had appointed a Repayment Administrator responsible for ensuring the repayment of deposits.
“The appointment of the Repayment Administrator was confirmed by the Pretoria High Court in December 2023 and Ithala was ordered to cooperate with the Repayment Administrator.”
“Although commonly referred to as a bank, Ithala was never granted a banking licence,” the Prudential Authority pointed out.
“However, the Minister of Finance granted an exemption to Ithala, as per the Banks Act 94 of 1990, allowing the entity to receive deposits while it regularised its operations.
“On 22 July 2022, the Prudential Authority issued a final exemption notice, which afforded Ithala a final opportunity to regularise its deposit-taking activities, warning that non-compliance would lead to the withdrawal of the exemption.
“The final exemption notice lapsed on 15 December 2023, with Ithala failing to meet all the conditions outlined in it,” it said.
“It has been common knowledge to all parties that the granting of an exemption to Ithala 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.”
Ithala ‘technically and legally insolvent’
“The Repayment Administrator, appointed by the Sarb, has established that Ithala is technically and legally insolvent, exposing depositors to potential loss of their deposits or parts thereof,” the Prudential Authority said.
“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 liquidation application means that depositors’ accounts will have to be closed to allow for the pending court processes.
“This measure will avoid a run on the institution and allow for a fair and orderly distribution of available funds,” the authority stressed.
“We understand the inconvenience and hardship this may cause. However, this is the necessary step to protect depositors.
“Depositors must note that the National Treasury has written to the Prudential Authority, advising that the government will guarantee their funds.
“In the interim, depositors must urgently make alternative arrangements to address their banking needs.
“The Prudential Authority will communicate further details following the court hearing.”
Ithala reacts
In the wake of the Prudential Authority’s latest actions, Ithala has lambasted the actions of the Repayment Administrator and warned that it could close down, putting 400 jobs on the line.
“Ithala faces imminent closure unless government acts swiftly to neutralise the actions of an arrogant and callous Repayment Administrator,” it said in a statement late on Thursday night.
“Ithala has engaged in extensive discussions with the Prudential Authority to secure our ability to continue operating. However, the Repayment Administrator, Johannes Kruger, has unjustly ordered Ithala to stop accepting deposits and processing withdrawals.
“This directive persists despite our assurances of financial stability and the backing received from key stakeholders, including the Parliament’s Standing Committee on Finance and the KwaZulu-Natal Provincial Government,” it added.
“Alarmingly, the Repayment Administrator has initiated liquidation proceedings against Ithala before any formal liquidation order has been issued by the courts.
“The grounds for this action are fundamentally flawed and based on erroneous calculations.’
‘See you in court’ says Ithala
Ithala said it will oppose the liquidation application in court.
“We are taking immediate action. Our legal team will be filing an urgent interdict to contest the Repayment Administrator’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,” it said.