Ithala SOC Limited (Ithala Bank), the historic financial institution founded by the KwaZulu homeland government to fund black entrepreneurs during the apartheid era, has slammed the Prudential Authority (PA) ‘s application to have it under provisional liquidation. 

The PA is a division of the South African Reserve Bank (SARB) that oversees the operations and compliance matters of banks and insurance companies in the country.

In a statement on Thursday (January 16), the PA said its application in the Pietermaritzburg High Court in KwaZulu-Natal is in the best interests of the approximately 257 000 depositors of Ithala, as the appointed liquidator would be able to utilise insolvency legislation to recover and distribute their funds to the extent possible.

It added that although commonly referred to as a bank, Ithala was never granted a banking licence. However, the Minister of Finance granted an exemption to Ithala, as per the Banks Act 94 of 1990 (Banks Act), allowing the entity to receive deposits while it regularised its operations.

The Prudential Authority alleged that Ithala is technically and legally insolvent, exposing depositors to potential loss of their deposits or parts thereof. However, it assured them their money was safe, and they would get it. 

“Depositors must note that the National Treasury has written to the Prudential Authority, advising that the government will guarantee their funds. In the interim, depositors must urgently make alternative arrangements to address their banking needs,” it said in a statement.

Hitting back, Ithala claimed it is financially stable and blamed the Repayment Administrator (RA) appointed by the Prudential Authority for allegedly acting in an “arrogant and callous” manner while managing its affairs.

“Alarmingly, the PA has initiated liquidation proceedings against Ithala before any formal liquidation order has been issued by the courts. The grounds for this action are fundamentally flawed, frivolous and based on erroneous calculations. Ithala is solvent with assets far exceeding its liabilities.

“Moreover, the Auditor General of South Africa has given Ithala a clean audit report for the year ended 31 March 2024 and confirmed its going concern status,” Ithala said in a statement after the PA’s move became public knowledge. 

Turning to Johannes Kruger, the RA appointed by the PA to oversee its affairs, it said it has operated for 13 years, taking deposits from customers, and there have been no issues.

“Deposits have been secured in the past 13 months of the RA’s tenure. He has not found any evidence of wrongdoing or irregularity on the part of Ithala in its deposit taking activities,” the bank added.