A High Court application has been made for the provisional liquidation of Ithala Bank as its exemption that allowed it to take deposits without a bank licence has expired. Photographer: Leon Lestrade / Independent Newspapers.
Ithala’s imminent liquidation comes after decades of attempting to get a banking licence and after it disregarded a national government directive by the Prudential Authority (PA) more than a year ago, to repay its depositors and cease its banking activities.
The National Treasury moved swiftly on Friday to assure Ithala’s more than 257 000 retail depositors that their deposits will be protected by a government guarantee. This was after the South African Reserve Bank appointed and High Court confirmed Repayment Administrator (RA) Johannes Kruger filed papers in the Pietermaritzburg High Court on Thursday calling for the provisional liquidation of Ithala, on January 30.
“Our legal team will be filing an urgent interdict to contest the RA’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 will allow deposit transfers to another bank until a permanent licensing framework is put in place for Ithala,” Ithala’s directors said in an initial response to the application.
Kruger said in the court papers that the application was because Ithala had allegedly disregarded the earlier directive to repay its depositors, and because it was commercially and technically insolvent, and that the R2.47 billion of deposits gained over the past 13 months, was unlawful.
Also, Ithala had not provided sufficient capital commitments or secured renewal of the guarantee over its deposits from its shareholder, the KwaZulu-Natal provincial government.
On December 18, 2023, the PA, the government agency responsible for the oversight of bank and insurance regulations, issued a directive to Ithala to stop taking deposits and repay depositors, but this was ignored and R2.74 billion of deposits were collected since then, while an advertising campaign to attract additional deposits is still ongoing, the court papers alleged.
They papers show that Ithala’s chief financial officer did prepare a “winding up” plan after the PA’s directive, but this, never implemented, had indicated that Ithala would be left with a balance sheet shortfall of R570 million.
Ithala’s parent company, the Ithala Development Finance Corporation (IDFC), which was originally established to promote economic development in KwaZulu-Natal, had in turn estimated this shortfall at closer to R1bn, the court papers showed.
“Ithala does not have the ability to service its debt,” the papers claimed.
Ithala, in response, on Friday blamed an “arrogant and callous RA” and it appealed for swift government assistance, as it faces “imminent closure.”
“Ithala has engaged in extensive discussions with the PA to secure our ability to continue operating. However, 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 (SCoF) and the KwaZulu-Natal provincial government,” Ithala’s directors said in a statement on Friday.
The Inkatha Freedom Party, which draws most of its electoral support from KwaZulu-Natal, also blamed the RA, and its national spokesperson Mkhuleko Hlengwa said they were “deeply concerned by the alleged rogue behaviour of the RA... We demand his immediate removal, especially in light of the court ruling from the last quarter of 2024, which restrains the RA from interfering in Ithala Bank's daily operations.”
ActionSA said they had already indicated last September already that Ithala’s collapse would be inevitable without a capital injection by the KwaZulu-Natal government or by National Treasury.
“Considering the tragic lessons from the VBS scandal, Ithala's collapse would represent an embarrassing failure of accountability and foresight. Sadly, as the agency’s fate is sealed, its demise is evidence of a blatant disregard for past mistakes, leaving the communities that rely on it exposed to significant risk, with their deposits now hanging in the balance,” said ActionSA MP Alan Beesley.
A KwaZulu-Natal Department of Economic Development, Tourism and Environment MEC Musa Zondi disputes the claim that Ithala was insolvent and said late Friday that “the entity is solvent”, as evidenced by clean audit from the Auditor-General of South Africa for the financial year ending March 31, 2024, assets that exceed liabilities, and the existing business operations and confirmation that depositors’ funds are safe.
He said the Premier of KwaZulu-Natal Thami Ntuli had escalated the issue to President Cyril Ramaphosa, seeking urgent solutions to protect depositors and stabilize Ithala’s operations.
Ithala’s directors said: “The grounds for this action are fundamentally flawed, frivolous and based on erroneous calculations. Ithala is solvent with assets that far exceed liabilities. Moreover, the Auditor General of South Africa has given Ithala a clean audit report for the year to March 31, 2024 and confirmed its going concern status.”
They said the deposits had been secure throughout the 13 months of the RA’s tenure.
“He has not found any evidence of wrongdoing or irregularity on the part of Ithala in its deposit-taking activities. This irresponsible action comes at a critical time, as many citizens prepare for the new school term and face essential financial obligations such as school fees,” Ithala’s director’s said.
“Failure to respond to the RA’s orders would threaten Ithala’s existence and have dire repercussions for the people of KwaZulu-Natal—especially for deposit holders, service providers, and our workforce,” they said.
They said the closure of Ithala would threaten 400 jobs and would negatively impact many, particularly those in rural areas who depend on Ithala for essential financial services, including SASSA grants.
The PA had issued a final exemption notice to Ithala that allowed it to bypass bank deposit-taking regulations, in July 2022, and it had been understood at that time that this was the bank’s final opportunity to regularise its deposit-taking activities. This exemption lapsed on December 15, 2023.
The liquidation application means that depositors' accounts will be closed to allow for pending court processes. This measure, said the PA, would avoid a run on the institution and allow for a fair and orderly distribution of available funds.
“In the interim, depositors must urgently make alternative arrangements to address their banking needs,” the PA said in a statement.
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