South African state-owned ‘bank’ faces liquidation

 ·17 Jan 2025

The Prudential Authority (PA) has taken a decisive step by applying to the Pietermaritzburg High Court for the provisional liquidation of Ithala SOC Limited (Ithala), a move that directly impacts approximately 257,000 depositors.

In a statement on Thursday (16 January), the PA noted that the application follows a series of regulatory and financial challenges faced by Ithala, culminating in its failure to meet key conditions required to continue its operations.

Ithala, often referred to as a bank, was never granted a banking license. However, it operated under a special exemption granted by the Minister of Finance in terms of the Banks Act 94 of 1990.

This exemption allowed Ithala to accept deposits temporarily while it worked to regularize its operations. However, despite repeated extensions and a final exemption notice issued by the Prudential Authority on 22 July 2022, Ithala failed to comply with the stipulated conditions.

The exemption expired on 15 December 2023, marking a critical turning point.

In December 2023, the Pretoria High Court confirmed the appointment of a Repayment Administrator by the South African Reserve Bank (SARB), tasked with overseeing the repayment of deposits.

The Repayment Administrator’s investigations revealed that Ithala was both technically and legally insolvent, placing depositors at significant risk of losing their funds.

Compounding the situation, Ithala’s shareholder, the Provincial Government of KwaZulu-Natal, did not provide the necessary capital commitments or a legally binding guarantee to secure the deposits.

Given these findings, the Prudential Authority determined that liquidation was the most prudent course of action to protect depositors’ interests.

By leveraging insolvency legislation, an appointed liquidator will aim to recover and distribute funds as equitably as possible.

This process necessitates the closure of depositors’ accounts to prevent a run on the institution and to facilitate an orderly distribution of available funds.

While this measure is undoubtedly inconvenient and distressing for affected clients, it is deemed essential to safeguard their remaining assets.

Amid this challenging period, the National Treasury has provided a critical assurance to depositors, confirming that the government will guarantee their funds.

This guarantee offers a vital safety net for the thousands of individuals and businesses who rely on Ithala for their banking needs.

In light of the situation, depositors are urged to make alternative arrangements to manage their financial affairs and secure banking services elsewhere.

Further communication from the Prudential Authority is expected following the court’s decision, which will clarify the next steps in the liquidation process.


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