Ithala SOC Limited has cautioned that returning to full operation will be a slow and complex process, comparing the task with restarting a smelter in a steel plant.
Ithala’s chief executive, Dr Thulani Vilakazi (pictured), said it will take months to “light the fire before you can produce one steel rod”, warning the institution “can’t be turned on and turned off”.
The High Court in Pietermaritzburg granted Ithala partial relief on 9 May, lifting the freeze on its Absa accounts and allowing it to resume core operations – excluding deposit-taking.
The freeze was imposed after the Prudential Authority (PA) filed for Ithala’s liquidation in January, which led to the suspension of all its accounts, including those of about 257 000 depositors.
Although often referred to as a bank, Ithala has never held a banking licence. It operated under a long-standing exemption from the Banks Act, which expired in December 2023. Despite a directive from the PA to stop taking deposits and return existing funds, Ithala continued to operate until the PA appointed repayment administrator (RA) Johann Kruger in December of that same year.
On 9 May, Judge Muzikawukhelwana Ncube granted Kruger leave to appeal an earlier ruling that had limited his authority but ruled that Ithala must be allowed to operate – without accepting deposits – while the appeal and liquidation process runs its course.
Read: Ithala resumes operations – but still can’t take deposits
At a media briefing on Wednesday (14 May), Vilakazi said the institution has made some progress since Friday’s court order, such as securing the release of its insurance business. He explained that Ithala also now has a plan to allow customers to make payments, such as car instalments.
“We also have a plan where we’re able […] our customers to now pay to an account at a particular bank, to receive these obligations on a monthly basis.”
He described the events of 16 January – the day the liquidation application was filed – as devastating. According to Vilakazi, the PA’s actions amounted to “gutting Ithala”.
He recalled that at about 3pm that day, in the middle of operations, an instruction came through that shut down one of Ithala’s key transaction platforms.
“That translated into a number of other activities. For an example, money in transit, where people are trying to deliver money… are told, don’t deliver the money, and they acted accordingly,” he said.
He told reporters that customers, including farm workers and factory employees, were in Ithala’s banking halls when the systems suddenly went offline – without any prior notice to him as the CEO.
“In our view, because I can’t argue legally, our advisers have told [us] they should have not done that,” he added.
Vilakazi said the shutdown caused a complete loss of operational capacity. ATMs and safes were locked, and several critical systems ceased functioning. Drawing on his past experience working in a factory, he said restarting an organisation such as Ithala was not as simple as flipping a switch.
He explained that restarting requires checking the integrity of data, restoring institutional capacity, and ensuring that supplier networks are reconnected.
“You have lost a few people that might have left. Bring that to fold before you switch on. So, you can’t turn it on and turn it off,” he said.
KZN government backs Ithala as liquidation battle escalates
In court papers supporting a liquidation application, PA chief executive and South African Reserve Bank deputy governor Nomfundo Tshazibana stated that Ithala is “technically and legally insolvent”.
Ithala rejected the claim, saying its assets “significantly exceed its liabilities”. The KZN Treasury echoed this view in legal documents filed on 26 January to oppose the liquidation.
According to the Treasury, as of 31 October 2024, Ithala’s assets stood at R3.25 billion and liabilities at R2.93bn – leaving a net asset position of R316 million. It said Ithala faces no solvency or liquidity issues.
However, a solvency report by Kruger cast doubt on the quality of Ithala’s equity and loan book. He warned that a shortfall may arise if all deposits – currently R2.47bn – had to be repaid.
Read: PA report contradicts Ithala and KZN Treasury’s solvency claims
KZN Premier Thami Ntuli reassured depositors this week, saying: “At no stage they will lose their money.”
He emphasised Ithala’s role in economic development, particularly for rural and township communities.
“There is no risk, therefore, for them to keep their money with Ithala,” Ntuli said.
The PA and Kruger have since indicated they will appeal the High Court ruling that cleared the way for Ithala to resume operations.
Ntuli criticised the PA and Kruger for appealing the ruling. He said their actions show they “are adamant in destroying” the institution.
He added the province is pursuing all avenues to save Ithala.
“Even if it called for us to go to the Constitutional Court, we’ll go to the Constitutional Court so that we save Ithala – not for us, not for ourselves, but for the people of this province.”
PA appeals judgment as liquidation fight continues
In its 12 May notice of appeal, the PA argues that Judge Ncube erred both in fact and in law and seeks to have his orders set aside and replaced with a dismissal of Ithala’s application under section 18(3) of the Superior Courts Act.
The PA contends the court should not have considered its alleged support for the RA’s leave to appeal, nor found “exceptional circumstances” justifying relief when the administrator’s conduct is authorised by the Banks Act and the expired exemption notice.
It argues the judgment “flouts the banking regulatory framework”, failed to distinguish operational from deposit-taking accounts, and overlooked the risk of dissipation of depositor funds.
In challenging the ruling, the PA points out that the court relied on an “allegedly issued” guarantee by Finance Minister Enoch Godongwana – purported to cover a R2bn shortfall to retail depositors – to allay depositor concerns.
“There is no evidence of such issue of a guarantee,” the PA notes, and insists that no lawful, binding guarantee has been placed before the court.
Read: R2bn Ithala guarantee sparks row over fiscal risk to KZN
The PA also criticises the High Court for underestimating the harm to the public interest and depositors if Ithala regained access to frozen accounts. It warns that preserving Ithala’s existence cannot override the rule of law or the statutory safeguards in the Banks Act.
The appeal will be heard by the full bench of the High Court in Pietermaritzburg. The outcome will determine whether Ithala may continue limited operations.
Ithala’s legal limbo: Zondi defends bank’s exemption history
The complex legal status of Ithala was again under scrutiny at the media briefing on Wednesday.
Although Ithala operates much like a bank, it is not registered as one under the Banks Act, which prohibits provincially owned entities from holding banking licences. Since 2001 – when Ithala was separated from its parent company, the Ithala Development Finance Corporation (IDFC) – it has relied on a series of ministerial exemptions to continue deposit-taking activities.
The IDFC, established in 1958, is a development agency wholly owned by the KwaZulu-Natal government.
These exemptions, granted under section 1(1)(cc) of the Banks Act, allowed Ithala to function without a banking licence, subject to strict compliance conditions. The last exemption was issued to Ithala in July 2022 and expired in December 2023.
KwaZulu-Natal MEC for Economic Development, Reverend Musa Zondi, addressed the implications of the lapsed exemption and the requirements of the Banks Act, and how these developments affect Ithala’s future.
“There is provision in the Banks Act which exists for exemption to be granted to certain institutions, such as Ithala … without having to acquire a banking licence. That has been the case from day one until the powers that be decided that they were no longer going to grant it,” he said.
He added the exemption mechanism was included in the law specifically to allow for state-backed financial institutions such as Ithala to operate outside of the traditional licensing regime.
“I’ve been a parliamentarian since 1994. From 1994 it has been a persistent call from parliamentarians that a state bank should be established. There has been no success. To date, Ithala is the only, if you like, existing state bank which has been successful, so why kill something that is already successful?”
Zondi argued the province’s push for Ithala to obtain a banking licence was a response to the current regulatory stance, not because the law itself requires such a licence for state-backed entities.
“The reason why we need to acquire a banking licence is … merely to comply with the current situation where the Prudential Authority has done away, has withdrawn its ability – not because it is not provided for in law,” he said.
He described the PA’s refusal to extend the exemption as “curious”, questioning the rationale for scrapping a legal mechanism that was deliberately designed to accommodate state entities such as Ithala.
“If it is not going to be operational, do away with the exemption regime,” he said.
As a stakeholder committed to inclusive economic development and financial empowerment, I welcome the reinstatement of Ithala with strong support. Ithala has played a critical role in extending financial services to communities that are often underserved by mainstream financial institutions—particularly in rural and township areas of KwaZulu-Natal.
Its developmental mandate has not only provided accessible banking solutions but has also supported entrepreneurship, job creation, and local economic participation. The decision to allow Ithala to resume operations is a step in the right direction toward preserving a uniquely people-centered financial institution that prioritizes service over profit.
I encourage all relevant authorities to work collaboratively to ensure Ithala remains compliant, transparent, and sustainable—while continuing to serve as a vital financial pillar for thousands of South Africans. Rebuilding trust and strengthening oversight will be essential, but its continued existence is in the public’s best interest.