The South African financial sector is witnessing a significant intervention as First National Bank (FNB) has been appointed by the National Treasury to manage the payout of funds to depositors of the embattled state-owned institution, Ithala. This move comes as Ithala, which operated without a full banking licence, faced potential liquidation after years of non-compliance issues, prompting the Prudential Authority (PA) to act to shield depositors from further financial instability. The process for individuals to recover their money is scheduled to commence on 8 December.
Ithala’s peculiar operating status stemmed from an exemption granted by the Finance Minister, permitting it to receive deposits despite not possessing a formal banking licence. This exemption, along with subsequent extensions, was intended to afford the institution adequate time to align its operations with stringent banking regulations and eventually secure a licence. However, the entity repeatedly failed to meet these requirements, continuing to grapple with various compliance shortcomings. These persistent failures led the Prudential Authority to seek the liquidation of Ithala earlier this year as a measure to safeguard and recover client funds. The National Treasury, having guaranteed the depositor funds, has now mandated FNB to execute the necessary payouts to the institution’s clients.
FNB, leveraging its substantial national branch network, has detailed the mechanisms for the payout process, aiming to ensure accessibility for all affected individuals. Ithala account holders will receive an SMS advising them to visit their nearest FNB branch. At the branch, customers will undergo verification as legitimate account holders, which will require them to present their South African identification document, proof of residence, and a bank account confirmation letter if they do not currently bank with FNB. The final steps involve completing a payment instruction form and signing a deed of cession form, thereby acknowledging the payment as a full and final settlement of their funds. It is important to note that all payments will only be processed after the completion of verification and compliance checks, a process that could take up to two working days. Furthermore, to manage the influx and minimise queuing, customers will receive a specific date via SMS detailing when they can visit an FNB branch. Given that the largest concentration of Ithala customers is in KwaZulu-Natal (KZN), FNB is temporarily extending its operating hours in the province from 8 to 31 December 2025, with KZN branches opening from 07:30 to 17:00 to better support the high volume of impacted clients.
The issues at Ithala are deep-seated, stemming from a systemic failure to adhere to South African banking regulations. The mismanagement at the institution was the catalyst for the Prudential Authority’s application for its liquidation. Following the appointment of a Repayment Administrator to ring-fence depositor funds, independent forensic accountants conducted an assessment, confirming that the institution was technically insolvent, with its liabilities exceeding its total assets. Specifically, the forensic audit revealed a liability burden of R2.79 billion against total assets of R2.35 billion, resulting in a substantial shortfall of R441.63 million. This dire financial state is exacerbated by the fact that Ithala had incurred total losses amounting to R520 million between March 2008 and March 2024, as previously reported by the Prudential Authority.
The ongoing compliance failures have been a central obstacle to Ithala obtaining a banking licence, as the institution has been operating under a now-revoked exemption. KZN Premier Thami Ntuli commented on the situation, stating that the provincial government is committed to supporting Ithala to meet the necessary compliance standards so that it can ultimately operate normally. The provincial government views the current focus on ensuring depositors can access their funds as the first step in a two-phase plan to revive the institution. Renowned banking sector analyst Kokkie Kooyman of Denker Capital provided further context, suggesting that the potential liquidation arose from approximately three years of severe mismanagement coupled with a notable lack of urgency in addressing critical compliance deficiencies. According to Denker Capital, remedying these systemic problems will not be a swift process, as it demands a complete cultural transformation within the company to re-establish sound custodianship of depositor funds.
The core of Ithala’s woes includes the quality of its loan book, which may indicate that a considerable portion of its loans are unlikely to be repaid, and the inadequacy of its operating systems for an entity performing banking functions. These operational and credit quality issues are considered a direct result of poor corporate governance, which has severely eroded client confidence and stalled necessary regulatory compliance actions. The problem had been intensifying for around three years, dating back to the initial warnings issued by the Prudential Authority regarding Ithala’s operations, as noted by Denker Capital. Although the regulatory body repeatedly extended grace periods for the institution to comply, the final notice eventually lapsed in December 2023. The loss of this last exemption, following a series of non-compliance breaches, was a significant blow to public trust. Denker Capital argues that the institution’s shareholders seemingly failed to grasp the magnitude of the crisis and the severe risk of a shutdown imposed by the Prudential Authority. The analyst further explained that the South African Reserve Bank must prevent a “run on a bank,” as a loss of confidence can trigger an unstoppable wave of withdrawals, a phenomenon that has historically caused numerous financial institutions to collapse.