The Reserve Bank’s Prudential Authority has applied for the provisional liquidation of Ithala.
The National Treasury said it will take all the necessary measures to protect more than 250 000 clients affected by the liquidation of Ithala SOC Limited.
This comes after the South African Reserve Bank’s (SARB) Prudential Authority (PA) on Thursday applied to the Pietermaritzburg High Court for the provisional liquidation of Ithala, the development finance agency wholly owned by the KwaZulu-Natal (KZN) province.
‘Insolvent’
The PA said the Repayment Administrator it appointed in December last year had established that Ithala was “technically and legally insolvent”.
Moreover, it failed to provide sufficient capital commitments or secure a legally binding renewal of the guarantee over its deposits from its shareholder, the KZN government.
“The Prudential Authority believes this action is in the best interests of the approximately 257 000 depositors of Ithala, as the appointed liquidator will be able to utilise insolvency legislation to recover and distribute their funds to the extent possible,” the Reserve Bank said.
While Ithala was commonly referred to as a bank but never granted a banking licence, it was granted an exemption by the finance minister, which allowed it to receive deposits on an interim basis.
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Treasury steps in
The liquidation application meant depositors’ accounts would have to be closed to allow for pending court processes, the central bank said, adding that while this would result in “inconvenience and hardship”, it was necessary to protect depositors.
However, the Treasury has stepped in, saying it has taken note of the PA’s application for provisional liquidation of Ithala.
“Following the Prudential Authority’s application for provisional liquidation of Ithala SOC Limited, we understand that depositors may be concerned about the safety of their funds.
“The National Treasury wishes to assure the retail depositors of Ithala SOC Limited that their deposits will be protected by a government guarantee, subject to the conclusion of the necessary technical work, Treasury said.
Government guarantee
The Treasury said it will provide a government guarantee to one or more banking institutions to ensure clients’ accounts can be migrated timeously and funds can be made available.
“We are working closely with the Prudential Authority to ensure an orderly process that protects depositors’ interests. While depositors will need to urgently make alternative banking arrangements, they can be assured that we will endeavour to secure their funds as far as is possible.
“The National Treasury will provide further details about the process for accessing guaranteed funds following the court’s decision on the liquidation application,” it said.
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