National Treasury Assures Ithala SOC Depositors of Govt-Backed Protection Amid Liquidation Process

“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,” National Treasury stated on Friday.

National Treasury has assured Ithala SOC Limited’s 257,000 retail depositors that their funds will be protected by a government guarantee, pending the completion of technical preparations. This reassurance comes in the wake of the Prudential Authority's application for the provisional liquidation of the institution.

“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,” National Treasury stated on Friday.

Provisional Liquidation Filed

The Prudential Authority has filed for provisional liquidation at the Pietermaritzburg High Court, citing the need to protect Ithala’s depositors. If granted, the appointed liquidator will employ insolvency laws to recover and distribute funds.

Ithala SOC Limited, which operated under a temporary exemption from the Banks Act, failed to meet the necessary conditions to secure a full banking license. The exemption, granted by the Minister of Finance, expired in December 2023. Consequently, Ithala was no longer legally permitted to continue deposit-taking activities.

Government’s Guarantee and Migration Plan

To safeguard depositors, National Treasury is working on providing a government-backed guarantee to one or more banking institutions. This measure is aimed at enabling the timely migration of depositors’ accounts and ensuring continued access to their funds.

“We are collaborating with the Prudential Authority to ensure an orderly process that prioritizes depositors' interests,” Treasury stated.

While depositors are encouraged to urgently establish alternative banking arrangements, Treasury emphasized that efforts are underway to secure their funds to the fullest extent possible.

Next Steps for Depositors

National Treasury has indicated that further details on accessing the guaranteed funds will be provided after the Pietermaritzburg High Court rules on the liquidation application.

Deposit migration will be a critical step, requiring both banking institutions and government entities to work swiftly and efficiently. Financial advisors recommend that Ithala depositors begin preparing necessary documents and account details for smooth transitions to new financial institutions.

Implications and Outlook

Ithala’s situation underscores the challenges faced by institutions operating under temporary exemptions from banking regulations. The lapse of its exemption and the subsequent liquidation application highlight the importance of strict compliance with banking laws to maintain depositor confidence and financial stability.

Treasury’s swift assurance of protection is likely to ease concerns among affected customers, though the final outcome will depend on the court’s decision and the efficiency of the migration process.