Ithala SOC Limited, a KwaZulu-Natal financial institution, is facing liquidation after operating illegally for an extended period without a banking licence. The Prudential Authority (PA), the regulator of banks, has taken action following Ithala’s repeated failures to comply with banking regulations.
For over a decade, Ithala operated under temporary exemptions granted by the PA and the Minister of Finance. These exemptions allowed Ithala to conduct banking activities, including taking deposits, despite not meeting the requirements for a banking licence as stipulated in the Banks Act. These exemptions were conditional, requiring Ithala to obtain a licence, a condition it consistently failed to meet. The PA issued a final exemption notice in July 2022, giving Ithala one last chance to regularise its operations. The notice clearly stated that failure to secure a licence by December 15, 2023, would result in the winding down of its deposit-taking activities.
Ithala failed to secure the necessary licence and continued to operate illegally after the final exemption expired. Consequently, the PA appointed a repayment administrator (RA) to manage the wind-down process and protect depositors’ funds. The RA’s investigation revealed that Ithala is insolvent, lacking the necessary funds to repay its depositors. This insolvency, combined with Ithala’s continued illegal operation, has prompted the PA to apply for Ithala’s liquidation.
To safeguard depositor funds and ensure equitable distribution, the RA, under the PA’s guidance, has frozen withdrawals and payments from Ithala’s deposit accounts. This measure prevents a “run” on the institution and ensures a fair distribution of available funds. Finance Minister [Insert Minister’s Name] has announced that National Treasury will provide a guarantee to assist in repaying depositors, mitigating the financial impact of Ithala’s failure.
The PA has clarified that the RA operates under its direction and supervision, dispelling any suggestions of independent action. The PA’s actions are focused on protecting public deposits and upholding the integrity of the banking system. The liquidation application is currently pending.