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The Prudential Authority has filed papers in the Pietermaritzburg High Court for the provisional liquidation of Ithala.
The Prudential Authority — responsible for the prudential regulation of banks and insurance companies within the South African Reserve Bank — said it believed this action was in the best interests of the about 257,000 depositors in Ithala, as the appointed liquidator will be able to use insolvency legislation to recover and distribute their funds to the extent that it is possible.
The authority said it has appointed a repayment administrator for 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 co-operate with the repayment administrator.”
The authority said the liquidation application meant 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. We understand the inconvenience and hardship this may cause. However, this is the necessary step to protect depositors.”
The authority said though commonly referred to as a bank, Ithala was never granted a banking licence. However, the finance minister, as authorised by the Banks Act, granted an exemption to Ithala allowing the entity to receive deposits while it regularised its operations.
On July 22 2022, the Prudential Authority issued a final exemption notice, which afforded Ithala an opportunity to regularise its deposit-taking activities, warning that noncompliance would lead to the withdrawal of the exemption.
“The final exemption notice lapsed on December 15 2023, with Ithala failing to meet all the conditions outlined in it.”
The authority said the repayment administrator, appointed by the South African Revenue Service, has established that Ithala was technically and legally insolvent, exposing 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 National Treasury has written to the Prudential Authority, advising that government will guarantee depositors’ funds.
“In the interim, depositors must urgently make alternative arrangements to address their banking needs.”
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