Banking

Prominent South African state-owned company faces liquidation

The Prudential Authority has applied to the Pietermaritzburg High Court for the provisional liquidation of the Ithala State-Owned Company (SOC) Limited. 

Ithala SOC is a licenced financial services company and registered credit provider wholly owned by the KwaZulu-Natal provincial government. 

Commonly referred to as a bank, the Prudential Authority made it clear in its statement that Ithala has never been granted a banking licence. Therefore, it is not a registered bank.

Rather, it has operated in a similar fashion to a bank under an exemption granted to Ithala by the Finance Minister, which allowed it to receive deposits. 

The Banks Act does not allow provincially owned state-owned entities to register as banks. Only a public company incorporated or registered as a national state-owned company can register as a bank. 

The last of Ithala’s exemption notices, enabling it to operate as a bank, was issued in July 2022 and lapsed on 15 December 2023. 

This was the last exemption notice granted to Ithala, which was the final chance for the company to regularise its deposit-taking activities following a series of non-compliance issues. 

One of the conditions contained in the last exemption notice required Ithala to obtain authorisation to establish a bank before 30 June 2023. Ithala failed to comply with this specific condition. 

Ithala’s application for authorisation to establish a bank did not sufficiently demonstrate how it would address the numerous supervisory concerns raised by the Prudential Authority.

On Thursday, 16 January, the Prudential Authority released a statement saying it had filed papers in the Pietermaritzburg High Court for Ithala’s provisional liquidation. 

The banking regulator said it believes this action is in the best interests of the approximately 257,000 depositors of Ithala as the appointed liquidator will be able to recover and distribute their funds to the extent possible.

It said the Reserve Bank had appointed a Repayment Administrator responsible for repaying deposits, which the Pretoria High Court confirmed in December 2023. 

“The Repayment Administrator, appointed by the SARB, has established that Ithala is technically and legally insolvent, exposing depositors to potential loss of their deposits or parts thereof,” the regulator said. 

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.

The liquidation application requires depositors’ accounts 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,” the regulator said.

“Depositors must note that the National Treasury has written to the Prudential Authority, advising that the government will guarantee their funds.” 

In the interim, the Prudential Authority said depositors must urgently make alternative arrangements to address their banking needs.

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