The National Treasury has moved 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.
This comes after the Prudential Authority filed papers in the Pietermaritzburg High Court for the provisional liquidation of Ithala.
The Prudential Authority 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.
The Prudential Authority, responsible for the prudential regulation of banks and insurance companies within the South African Reserve Bank (SARB), appointed a Repayment Administrator responsible for the repayment of deposits.
The appointment of the Repayment Administrator was confirmed by the Pretoria High Court on 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. However, the Minister of Finance granted an exemption to Ithala, as per the Banks Act 94 of 1990 (Banks Act), allowing the entity to receive deposits while it regularised its operations.
In 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.
The Prudential Authority said that 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.
It said that 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.
“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,” it said.
“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. We understand the inconvenience and hardship this may cause. However, this is the necessary step to protect depositors.”
The Prudential Authority said the National Treasury has written to it, advising that the government will guarantee their funds.
Treasury said that this work included 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.
“Following the Prudential Authority’s application for provisional liquidation of Ithala SOC Limited, we understand that depositors may be concerned about the safety of their funds.
“We are working closely with the Prudential Authority to ensure an orderly process that protects depositors' interests. 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.”
Treasury added that it would provide further details about the process for accessing guaranteed funds following the court's decision on the liquidation application.
In August 2024, Financial Sector Conduct Authority announced the suspension of Ithala’s licence as a financial services provider. The suspension was to remain in place until Ithala satisfies the conditions required to lift the sanction.
BUSINESS REPORT