Godongwana working to move 76,000 Sassa beneficiaries from ‘insolvent’ Ithala bank

The National Treasury and the South African Reserve Bank (Sarb) are racing against time to move 76,000 Sassa beneficiaries from the troubled Ithala bank to other banking institutions.

This is to avoid a situation where beneficiaries would not have access to their payments. 

This comes after the Sarb's Prudential Authority this week applied for the liquidation of the KwaZulu-Natal-based bank for what it says are series of regulatory and financial problems.

Finance minister Enoch Godongwana this week told TimesLIVE Premium he had agreed with the Sarb that the more than 76,000 Sassa beneficiaries should be moved to a commercial bank. However, this move means that the Treasury will have to put up a financial guarantee, which Godongwana said he has already agreed to. 

“The only thing I was trying to say is that we must transfer Sassa beneficiaries to another bank, which they have agreed to — and that another bank would require a guarantee, which I would give them,” said Godongwana.

“We are now busy with the transfer of 76,000 beneficiaries to another bank. My team and the Reserve Bank are busy with that. What then happens is that liquidation forced us to do something extra to put up the guarantee before the transfer of the depositors to another bank is finalised.”

The issue of liquidation becomes moot because once depositors are out of the bank then they’ve got no interest in Ithala, he said, adding their only interest is the depositors.

“So it now leaves the burden of Ithala with me, because then I need to find the money for the depositors.”

The Prudential Authority said it had applied for the liquidation of Ithala to safeguard the interests of its more than 257,000 depositors, “as the appointed liquidator will be able to utilise insolvency legislation to recover and distribute their funds to the extent possible”.

The repayment administrator appointed by the Sarb has established that Ithala is technically and legally insolvent, exposing depositors to potential loss of their deposits or parts thereof

—  Prudential Authority

Ithala was never granted a banking licence but was granted an exemption by Godongwana in July 2022 that allowed it to accept deposits, it said. However, Ithala failed to get its house in order and was unable to comply with the regulations that allowed it to receive deposits.

“It has been common knowledge to all parties that the granting of an exemption to Ithala was temporary and subject to certain conditions. Ithala had to ultimately obtain a banking licence in terms of the Banks Act or cease all its deposit-taking activities,” said the Prudential Authority in a statement. 

“The repayment administrator appointed by the Sarb has established that Ithala is technically and legally insolvent, exposing depositors to potential loss of their deposits or parts thereof.”

Ithala has also failed to provide enough capital commitments or a binding renewal of guarantee over its deposits from its shareholders, it said.

“The liquidation application means that depositors' accounts will have to be closed to allow for the pending court processes. This measure will avoid a run on the institution and allow for a fair and orderly distribution of available funds.

“We understand the inconvenience and hardship this may cause. However, this is the necessary step to protect depositors. 

“Depositors must note that the National Treasury has written to the Prudential Authority, advising that the government will guarantee their funds.”