Sarb clarifies ‘misinformation’ about Ithala liquidation

The South African Reserve Bank (Sarb) has issued a media release to set the record straight on what it calls “misinformation” circulating about Ithala.

In January this year, the Prudential Authority, a division of the Sarb responsible for supervising banks and financial institutions, announced that it had filed for the provisional liquidation of Ithala at the Pietermaritzburg High Court.

The Prudential Authority and the appointed repayment administrator are awaiting the court’s decision on the liquidation application.

Meanwhile, the Sarb provides answers to some frequently asked questions.

If Ithala was never a registered bank, why was it allowed to take deposits?

Although Ithala was never registered as a bank, it was allowed to operate as one through exemptions issued by the Registrar of Banks, which later became the Prudential Authority. These exemptions required Ithala to separate its deposit-taking activities from its other businesses, such as providing loans. Ithala failed to do so.

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Have all Ithala’s bank accounts been frozen?

No. The repayment administrator, appointed by the Prudential Authority, instructed Absa Bank Limited to freeze only Ithala’s deposit-taking accounts. From 16 January 2025, Ithala could no longer receive deposits or make payments from these accounts, affecting depositors.

This action was taken to prevent a run on Ithala (a situation where a large number of depositors try to withdraw their funds at once, potentially causing a collapse) and ensure an orderly and fair repayment to all depositors.

(Absa acted as the intermediary bank since Ithala is not a licensed bank.)

Has the repayment administrator and/or the Prudential Authority acted contrary to Judge Ncube’s order delivered in the Pietermaritzburg High Court?

No. In the judgment, it was confirmed that the repayment administrator was allowed to take control of Ithala’s deposit-taking activities. It was also confirmed that Ithala was not permitted to accept deposits from the public.

The repayment administrator has requested permission to appeal the judgment to the extent that it stops him from taking control of all of Ithala’s assets. The repayment administrator deems this necessary because Ithala did not separate its deposit-taking activities from its other businesses, like giving loans to the public.

Even though applying for an appeal pauses the judgment, the repayment administrator is still complying with Judge Ncube’s order. He has only frozen accounts related to Ithala’s illegal deposit-taking, which is in line with the judgment.

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Has the repayment administrator lied about Ithala’s solvency and liquidity in order to place it into liquidation?

No. The repayment administrator tasked independent forensic accountants to assess Ithala’s solvency and liquidity. Their report found that Ithala is technically insolvent, meaning its liabilities exceed its assets.

Specifically, Ithala’s liabilities amount to R2.79 billion, while its total assets stand at R2.35 billion, resulting in a shortfall of R441.63 million.

This insolvency report, now a public record, was submitted to the court for liquidation proceedings.

Between 31 March 2008 and 31 March 2024, Ithala incurred R520 million in losses due to a high-cost structure misaligned with its size, complexity, and risk profile.

Did the repayment administrator decide to apply to court to have Ithala liquidated?

No, the repayment administrator operates under the direction of the Prudential Authority and does not act independently.

All actions taken by the repayment administrator have been with the consent of the Prudential Authority.

The liquidation application was brought by the Prudential Authority. The purpose of the repayment administrator is to safeguard Ithala’s assets and see to it that the depositors are repaid.

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Has Ithala’s client database been unlawfully transferred to another commercial bank?

No. Following the Prudential Authority’s instructions, the repayment administrator has engaged with registered banks to appoint a repayment bank, enabling the repayment of unlawfully taken deposits owed to Ithala clients. This step is required by the Banks Act.

Are Ithala clients still required to repay their loans?

Ithala’s clients are still responsible for repaying their loans. The Prudential Authority’s actions regarding Ithala do not cover its loan business. However, Ithala has notified all clients via SMS that loan repayments must now be made to a different Ithala account.

This article was republished from Moneyweb. Read the original here.