Ithala Bank has threatened to take legal action against the application for its liquidation by the banks’ regulator, which would put 400 jobs and more than 250 000 depositors into jeopardy.
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 appointed a Repayment Administrator, Johannes Kruger, responsible for the repayment of deposits, and Kruger’s appointment was confirmed by the Pretoria High Court in December 2023.
However, in a statement today Ithala blamed Kruger, saying he has unjustly ordered it to stop accepting deposits and processing withdrawals, saying his actions were “arrogant
and callous” in spite of Ithala having engaged in extensive discussions with the Prudential Authority to secure its ability to continue operating.
Ithala said Kruger’s directive persists despite its 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.
“Alarmingly, the Prudential Authority has initiated liquidation proceedings against Ithala before any formal liquidation order has been issued by the courts. The grounds for this action are fundamentally flawed, frivolous and based on erroneous calculations. Ithala is solvent with assets that far exceed its liabilities,” Ithala said in a statement.
“Moreover, the Auditor-General of South Africa has given Ithala a clean audit report for the year ended 31 March 2024 and confirmed its going concern status. Ithala has operated for 13 months after the RA was appointed. Due to the integrity of its deposit taking activities, soundness of its business and the loyalty of its depositors, there was no panic withdrawal of deposits.
“Deposits have been secure throughout the 13 months of the Repayment Administrator’s tenure. He has not found any evidence of wrongdoing or irregularity on the part of Ithala in its deposit taking activities. Kruger’s directive to all Ithala service providers to halt operations directly undermines our customers’ access to their funds and the ability to conduct transactions.”
The Prudential Authority yesterday said Kruger established that Ithala was technically and legally insolvent, exposing depositors to potential loss of their deposits or parts thereof.
Moreover, it said 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 liquidation application means that depositors' accounts will have to be closed to allow for the pending court processes,” it said.
“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.”
However, Ithala said this action was “irresponsible” and came at a critical time as many citizens were preparing for the new school term and faced essential financial obligations such as school fees.
Ithala said such moves contradicted the commitment to protect customers’ interests and ensure the stability of the South African financial system, and defied existing court rulings regarding Ithala’s operations.
“We are taking immediate action. Our legal team will be filing an urgent interdict to contest the Repayment Administrator’s orders,” it said.
“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 would allow deposit transfers to another bank until a permanent licensing framework is put in place for Ithala.”
Ithala said the provincial government has emphasized that this temporary transfer was crucial and can be reversed if Ithala regains its licensing to accept deposits.
The bank said it was committed to preventing any shutdown of operations.
The closure of Ithala threatens 400 jobs and would negatively impact many, particularly those in rural areas who depend on Ithala for essential financial services, including SASSA grants.
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