By Lehlohonolo Lehana.
The Pietermaritzburg High Court has ruled that the state-owned financial institution Ithala bank can resume with its core business operations.
This comes after the bank’s fight to survive liquidation by the South African Reserve Bank’s (SARB) Prudential Authority (PA).
Ithala SOC is a licensed financial services company and registered credit provider wholly owned by the KwaZulu-Natal provincial government.
On 16 January 2025, the Prudential Authority (PA) released a statement saying it had filed papers in the Pietermaritzburg High Court for Ithala’s provisional liquidation.
The banking regulator said it believes this action is in the best interests of Ithala’s approximately 257,000 depositors, as the appointed liquidator will be able to recover and distribute their funds to the extent possible.
It said the Reserve Bank had appointed a Repayment Administrator (RA) responsible for repaying deposits, which the Pretoria High Court confirmed in December 2023.
“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 regulator 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.
Since Ithala was never a registered bank, this left many wondering why it was allowed to take deposits.
The SARB clarified that, even though Ithala has never been registered as a bank, it had been permitted to operate a bank’s business through various exemptions.
In a judgement, on Friday, Judge Muzi Ncube ruled that Johannes Kruger, SARB’s appointed Repayment Administrator (RA) has no right to take over the operational and day-to-day management of Ithala.
Judge Ncube further clarified that Kruger was prohibited from taking over the human resource, treasury, marketing, finance, and any other operational functions of Ithala.
Since his appointment, the RA has also commissioned independent forensic accountants to assess Ithala’s solvency and liquidity.
Their report found that Ithala is technically insolvent, meaning its liabilities exceed its assets.
Specifically, Ithala’s liabilities amount to R2.79 billion, while its total assets stand at R2.35 billion, resulting in a shortfall of R441.63 million.
The PA had previously reported that, between 31 March 2008 and 31 March 2024, Ithala incurred losses totalling R520 million.
At the start of May, Finance Minister Enoch Godongwana also approved a R2 billion guarantee to protect the funds of Ithala’s depositors. Ithala holds around R2.5 billion in deposits.
The bank was founded by the late inkosi Mangosuthu Buthelezi during the times of the KwaZulu government in 1958 with an intention to assist with economic development and empowerment in the province.