FNB steps in amid state-owned ‘bank’ collapse

FNB has been appointed by the National Treasury to pay out Ithala SOC depositors, with the process to give individuals access to their money beginning on 8 December. 

This comes after Ithala has been mired in compliance issues and faces potential liquidation, with the Prudential Authority looking to protect depositors from further mismanagement. 

Ithala is not a bank, holding no banking licence. The institution operated under an exemption from the Finance Minister that enabled it to receive deposits. 

The exemption and repeated extensions aimed to give Ithala time to regularise its activities and comply with banking regulations to receive a licence. 

However, it has failed to do so, with it still suffering from various compliance issues. The Prudential Authority applied for its liquidation earlier this year to try to recover funds for its depositors. 

The National Treasury guaranteed depositor funds, which it has now appointed FNB to pay out to Ithala clients with funds at the ‘bank’. 

FNB explained how the process will work, with it using its extensive branch network to ensure all individuals can be assisted. 

Ithala account holders will be advised, via an SMS, to visit their nearest FNB branch to complete a process to obtain their payouts. 

• Customers will be identified and verified as legitimate Ithala account holders at the branch and will be required to produce:
• South African ID
• Proof of Residence
• Bank account confirmation letter, if the customer is not banked by FNB

The customer will then complete a payment instruction form and sign a deed of cession form to acknowledge receipt of payments as full and final settlements.

It is important to note that payments will only be made after all verification and compliance checks have been completed, this may take up to two days. 

Pay-outs can be accessed at any FNB branch in the country and will be managed to limit queues and long waiting times. Customers will receive an SMS with the dates they can visit their nearest FNB branch.

As the largest concentration of Ithala customers is in KwaZulu-Natal (KZN), FNB is extending its operating hours in the province to best support those affected customers. From 8 December to 31 December 2025 ,FNB KZN branches will be open from 07:30 to 17:00.

Ithala’s problems run deep

Ithala has had significant issues in complying with South African banking regulations, with mismanagement resulting in the Prudential Authority applying for its liquidation. 

Following the appointment of a Repayment Administrator to secure funds for the depositors, independent forensic accountants assessed Ithala’s liquidity and solvency. 

They found that the ‘bank’ was technically insolvent as its liabilities exceeded its assets. Specifically, Ithala’s liabilities amount to R2.79 billion, while its total assets stand at R2.35 billion, resulting in a shortfall of R441.63 million.

The Prudential Authority had previously reported that, between 31 March 2008 and 31 March 2024, Ithala incurred losses totalling R520 million.

“The issue of compliance for Ithala is a significant one for it to attain a banking licence, because it has been operating with an exemption that has been halted,” KZN Premier Thami Ntuli explained. 

“What we are saying is that we are going to support the institution to meet the compliance requirements, so that it can operate under normal circumstances.” 

This is the second phase of the provincial government’s plan to resurrect Ithala, with it spending much of 2025 focusing on ensuring depositors can access their funds.

Denker Capital’s Kokkie Kooyman, a renowned banking sector analyst, said the potential liquidation of Ithala came about after three years of mismanagement and a lack of urgency in addressing compliance issues.

Kooyman said these challenges cannot be fixed overnight, as it would require a complete cultural shift within the company to become good custodians of depositor funds.

Chief among Ithala’s issues is the quality of the bank’s loan book, which may show that a significant portion of its loans cannot be paid back. 

Another key issue is Ithala’s operating systems, which may not be adequate for a company that acts as a bank. 

This is a direct result of the company’s management, which has resulted in clients losing trust in the institution and minimal action being taken to do what is necessary to meet regulatory requirements. 

“The problem has been growing for around three years, which is when the Prudential Authority first warned about Ithala’s operations,” Kooyman said. 

The regulatory body has repeatedly given Ithala grace by extending its exemption, but has let the final notice lapse in December 2023. 

Once it lost this exemption, clients would naturally lose trust in the institutio,n as it was the final chance for the company to regularise its deposit-taking activities following a series of non-compliance issues.

“The shareholders failed to understand the extent of the problem and the risk of a shutdown from the Prudential Authority,” Kooyman said. 

“The Reserve Bank cannot afford a run on a bank and a loss of trust in the banking system.” 

“The problem with a bank is that once the public loses trust in the bank, the party that stands to lose the most are depositors, so they start withdrawing their money. This creates a run on the bank.”

“That is basically unstoppable and is a really nasty phenomenon that has resulted in many banks falling over.”