Prominent South African state-owned company fighting for survival
The potential liquidation of Ithala SOC is the result of over three years of mismanagement and a lack of urgency in taking action to save the financial services provider.
This is feedback from banking sector expert and director at Denker Capital Kokkie Kooyman, who outlined some of the company’s challenges and how it could be saved.
On 16 January, the Prudential Authority applied to the Pietermaritzburg High Court for the provisional liquidation of Ithala.
Ithala 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 similarly to a bank under an exemption granted to Ithala by the Finance Minister, which allowed it to receive deposits.
On 17 January, News24 reported that the High Court had postponed a decision on whether to halt Ithala’s provisional liquidation.
While the company’s future remains uncertain, Kooyman told Newzroom Afrika that there are clear, significant problems with its operations that cannot be fixed overnight.
Kooyman explained that while Ithala’s balance sheet appears to show that it is adequately capitalised, there are problems below the surface.
Chief among these 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 institution as it 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.

“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.”
The Prudential Authority has, in this case, tried to prevent a run on the bank by not allowing clients to withdraw their money, pending the outcome of the liquidation case.
It has assured depositors that their funds are safe and have been guaranteed by the National Treasury.
Kooyman said this does not mean that the bank will be closed down, and the Prudential Authority still has a few alternatives.
The government could still give the company a cash injection to cover its bad debt and ensure it can continue its operations.
However, this is a short-term fix, as the underlying lack of trust in the management team would simply result in clients withdrawing their cash when it becomes available.
Kooyman suggested that any capital injection must be accompanied by a management shakeup to restore trust in the institution.
“The bank fulfilled a very good and useful function in the rural areas and communities who are dependent on it,” he said. This role gives the government and commercial banks a good reason to step in and save Ithala.
“It would be a shame to let it fall over. In previous cases, you would go to another bank and ask it to take over the system to restore trust in it.”
“What I have heard is that other banks have not been interested in this because Ithala is a bit too small for them to allocate management time to it.”
In this case, the government may have to provide an incentive for a commercial bank to take over Ithala’s operations by covering its existing bad debt.
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