Ithala faces liquidation amid insolvency concerns

Ithala’s provisional liquidation may result in the closure of 257 000 depositors’ accounts while legal proceedings are under way. Photo: Ithala

The Prudential Authority’s decision to file for the provisional liquidation of Ithala will result in the closure of the 257 000 depositors’ accounts while court processes are under way.

The Reasons Behind Provisional Liquidation

The authority, which is responsible for the prudential regulation of banks and insurance companies within the South African Reserve Bank, said that filing for provisional liquidation is in the best interests of Ithala’s depositors, because “the appointed liquidator will be able to utilise insolvency legislation to recover and distribute their funds to the extent possible”.

Past Failures to Regularise Operations

The papers were filed at the Pietermaritzburg high court on 16 January and comes after the Repayment Administrator, appointed by the Reserve Bank, established that Ithala is “technically and legally insolvent” and exposes depositors to potential loss of their deposits. The Reserve Bank noted that 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, which failed to meet the conditions outlined in the final exemption notice issued in July 2022.

Consequences of Closure

Ithala was ordered to cooperate with the Repayment Administrator, which is responsible for Ithala’s deposits and appointed by the Reserve Bank, but failed to do so. In response to the legal action, Ithala is calling on the government to “neutralise the actions of an arrogant and callous Repayment Administrator”.

In a statement issued on 17 January, Ithala said the Prudential Authority initiated the liquidation proceedings before any formal liquidation order was 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. 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,” it said.

Government Response

However, from 31 March 2008 to 31 March 2024, Ithala’s losses amounted to R520 million. The Reserve Bank noted that capital injections were not able to absorb losses, and it hindered capital deployment to grow Ithala’s balance sheet. “Ithala has a high cost structure relative to its nature, size, complexity and risk profile,” the bank said.

The treasury assured depositors that their money will be protected by a government guarantee, subject to the conclusion of the necessary technical work. It advised depositors to “to urgently make alternative banking arrangements, they can be assured that we will endeavour to secure their funds as far as is possible”.