Ithala's provisional liquidation may result in the closure of 257 000 depositors’ accounts while legal proceedings are under way. (Photo: Ithala)
The National Treasury has assured depositors of Ithala SOC Limited that their deposits will be protected by a government guarantee after the Prudential Authority (PA) announced it had filed papers in the Pietermaritzburg High Court for the provisional liquidation of the bank.
The Prudential Authority, a regulator under the South African Reserve Bank (SARB), said it believes this action was 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 National Treasury said it understands that depositors may be concerned about the safety of their funds.
In a statement, it said the work to secure the funds includes 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.
“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 possible,” said the Treasury in a statement.
It said it will provide further details about the process for accessing guaranteed funds following the court’s decision on the liquidation application.
KZN Treasury MEC Francois Rodgers said the department’s biggest concern was the approach and attitude adopted by the repayment authority (RA), under the leadership of Johannes Kruger.
“Since his appointment by the PA, it appears Kruger has been hell-bent on taking over control of the entire Ithala operation, a move which has hamstrung operations at the bank and, in fact, compounded the challenges, rather than protecting the depositors. The latest move by the RA, to supersede legal action by the PA, is proof of this fact.”
Ithala said it was committed to preventing any shutdown of operations.
The bank said the closure threatens 400 jobs and would negatively impact many, particularly those in rural areas, who depend on Ithala for essential financial services, including Sassa grants.
Liquidation application
According to PA, the repayment administrator, appointed by the SARB, has established that Ithala is technically and legally insolvent.
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.
According to PA, 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 a necessary step to protect depositors,” said the regulator.
According to court papers, the matter is expected to be heard in the Pietermaritzburg High Court on January 30.
KZN Legislature’s Economic Development and Tourism Portfolio Committee said that as an oversight body, it will continue to support the Department of Economic Development and Tourism and Ithala in their legal action to file an urgent interdict against the Prudential Authority’s orders.
“This action is not only necessary but also urgent, as it ensures Ithala can continue its critical mandate of serving the people and businesses of KwaZulu-Natal.
“We firmly believe that the Prudential Authority has not fully considered the ongoing improvement plans and initiatives aimed at stabilising Ithala’s operations. These efforts demonstrate the institution’s commitment to addressing its challenges, and we support the legal challenge to prevent premature liquidation,” said the portfolio committee in a statement.
This article was first published by The Witness.