The South African Reserve Bank’s (SARB) Prudential Authority and National Treasury have requested Ithala Bank’s clients to urgently make alternative banking arrangements due to plans to liquidate the KwaZulu-Natal based financial institution.
Application to have bank liquidated
This comes after the Prudential Authority and National Treasury announced in a media statement released on Thursday evening that the former has applied to the high court to have Ithala liquidated.
“In the interim, depositors must urgently make alternative arrangements to address their banking needs,” said the Prudential Authority in a media statement.
The statement resulted in Treasury allaying the fears of Ithala’s 257, 000 investors. It assured them that their deposits were safe.
The authority detailed this in a statement. “The Prudential Authority has filed papers in the Pietermaritzburg High Court for the provisional liquidation of Ithala SOC Limited (Ithala).”
Best interest of depositors
This court action, according to the Prudential Authority, is meant to rule in the best interests of the bank’s clients. All 257, 000 depositors of Ithala. This is due to the fact that the appointed liquidator will be able to utilise insolvency legislation to recover and distribute their funds to the extent possible.
“The Prudential Authority, responsible for the prudential regulation of banks and insurance companies within the SARB, appointed a Repayment Administrator responsible for the repayment of deposits. This appointment of the repayment administrator was confirmed by the Pretoria High Court inn December 2023. And Ithala was ordered to cooperate with the repayment administrator.
“Although commonly referred to as a bank, Ithala was never granted a banking licence. However, the Minister of Finance granted an exemption to Ithala, as per the Banks Act 94 of 1990 (Banks Act). This allowed the entity to receive deposits while it regularised its operations.
Final exemption notice
“On 22 July 2022, the Prudential Authority issued a final exemption notice. This… afforded Ithala a final opportunity to regularise its deposit-taking activities. Prudential Authority warned that non-compliance would lead to the withdrawal of the exemption.
“The final exemption notice lapsed on 15 December 2023. This with Ithala failing to meet all the conditions outlined in it.
“It has been common knowledge to all parties that the granting of an exemption to Ithala was temporary. And it was subject to certain conditions. Ithala had to ultimately obtain a banking licence in terms of the Banks Act. Or alternatively cease all its deposit-taking activities,” said the authority.
The repayment administrator has established that Ithala is technically and legally insolvent. This is exposing depositors to potential loss of their deposits or parts thereof.
“Moreover, Ithala did not provide sufficient capital commitments. Nor did it secure a legally binding renewal of the guarantee over its deposits from its shareholder, the Provincial Government of KwaZulu-Natal.
depositors’ accounts will have to be closed
“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 the necessary step to protect depositors.”
The National Treasury has written to the Prudential Authority, advising that the government will guarantee their funds.
“In the interim, depositors must urgently make alternative arrangements to address their banking needs.
“The Prudential Authority will communicate further details following the court hearing.”
Working to ensure an orderly process
Treasury said it was working closely with the 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 is possible.
“The National Treasury will provide further details about the process for accessing
guaranteed funds following the court’s decision on the liquidation application.”
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