Ithala faces provisional liquidation, but government guarantee will kick in to protect consumers.

The South African Reserve Bank’s Prudential Authority has approached the KwaZulu-Natal High Court in Pietermaritzburg to request the provisional liquidation of Ithala SOC, a development finance agency. This action follows a report from a repayment administrator, which concluded that Ithala is both technically and legally insolvent.If the liquidation is approved, about 257,000 depositors may face the loss of all or part of their deposits. The liquidation would also mean that their accounts will need to be closed, allowing court processes to take place. However, the Reserve Bank believes that this is the best course of action for consumers. A liquidator will be appointed to recover and distribute any available funds, following insolvency legislation.Despite being commonly called a bank, Ithala was never granted a formal banking license. It had a temporary exemption that allowed it to receive deposits, but the Prudential Authority warned it would need to regularize its operations to either secure a banking license or stop taking deposits. By December 15, 2023, Ithala had failed to meet the requirements outlined in this exemption.The Reserve Bank cited several issues, including Ithala’s failure to provide sufficient capital and secure a guarantee from the KwaZulu-Natal provincial government. It also noted concerns about Ithala’s management, with vacancies, difficulties in attracting skilled executives, and poor succession planning. To avoid a rush on the bank, which could harm depositors, the Reserve Bank has decided to freeze accounts for an orderly distribution of funds.In response, Ithala denied the insolvency claims, calling them “fundamentally flawed.” The agency insisted it is solvent, with assets surpassing its liabilities, and pointed to a clean audit report for the year ending March 2024. Ithala plans to challenge the liquidation request legally and has urged the KwaZulu-Natal provincial government to work with national officials on a temporary solution, including transferring deposits to another bank.The National Treasury has stepped in, assuring Ithala’s retail depositors that their funds will be protected by a government guarantee. The Treasury is working on a plan to facilitate the migration of accounts and ensure that depositors have access to their funds.This is not the first instance of government intervention in a bank-related crisis. In June 2023, the government also provided a guarantee to help depositors at Habib Overseas Bank when it was placed under curatorship due to governance and compliance issues. However, that situation was different, as it involved a formal curatorship rather than liquidation.