Ithala Bank's future in jeopardy as Treasury issues guarantee for depositors

THE future of Ithala Bank is looking bleaker following the National Treasury's decision to issue a guarantee to the bank to allow for the orderly transfer of the Bank's deposits to another financial institution.

This information was contained in recent parliamentary replies from the National Treasury. Senior officials at the bank said while they have not seen the replies, it is clear that the guarantee is not intended to save Ithala.

The Mercury contacted Treasury for comment but it had not responded.

The latest development have raised concerns among the political leadership in KwaZulu-Natal's legislature, who have been working tirelessly to try and save the development bank. 

Currently, the bank is involved in numerous legal battles with the Repayment Administrator, who was appointed by the Prudential Authority to manage the bank's deposits but ended up taking over other functions of the bank. The bank contested this, arguing that the Repayment Administrator had overstepped his mandate. Additionally, Ithala Bank is facing attempts to liquidate it.

The parliamentary replies to ActionSA Member of Parliament Alan Beesley showed that he had asked the National Treasury whether it agreed to issue a guarantee to protect the depositors at Ithala Bank.

The reply stated, “The Minister of Finance committed to issuing a guarantee to ensure the full protection of Ithala SOC Limited depositors, consistent with previous interventions aimed at safeguarding depositor funds. This followed the Prudential Authority’s application for the provisional liquidation of Ithala SOC Limited on 15 January 2025.

“Following the application for provisional liquidation, the Minister of Finance committed to providing a guarantee to a registered bank to facilitate the orderly transfer of the Ithala depositor book to another institution. The transfer of the depositor book (liabilities) would be accompanied by the issuance of a guarantee (matching asset) in favour of a registered bank, which will act as a host or bridge bank. The appointed registered bank would host these deposits by providing Ithala SOC Limited depositors with the option to either: (a) remain with the host bank; or (b) transfer the deposits to any licensed bank of their choice.

“The indicative size of the liability for all depositor accounts is approximately R2.2 billion. To facilitate the transaction, the guarantee would need to match this exposure,” concluded the reply.

Beesley said the reply signals that the future of Ithala is bleak. “We welcomed the commitment by the Finance Minister to issue a guarantee to ensure the full protection of Ithala SOC Limited depositors. A large number of these depositors are from impoverished communities whose deposits were at risk through no fault of their own.

“What is telling from the Finance Minister's commitment is that the guarantee would provide for the transfer of the Ithala depositor book to another institution. With Ithala no longer holding deposits, Ithala's future as a bank is effectively over. This is hugely unfortunate as Ithala's mandate within the context of rural KwaZulu-Natal is critically important.”

Mafika Mndebele, Chairperson of the Economic Development Committee in KwaZulu-Natal, said while they welcome the commitment by the Minister of Finance to issue a guarantee that fully protects Ithala SOC Limited’s depositors, “we must equally stress that this cannot be the end of the road for Ithala itself. Safeguarding depositors is critical, but so too is safeguarding Ithala as a development finance institution with a unique mandate in KwaZulu-Natal.

“Ithala is not an ordinary bank. For decades, it has been the only financial institution willing to serve communities that commercial banks have neglected—townships, rural villages, small enterprises, and informal traders. To allow Ithala to disappear into liquidation would be to roll back hard-won gains in financial inclusion, economic empowerment, and local development.

Mndebele said while the government welcomes the guarantee and the proposed mechanism to ensure depositor security, stakeholders—including the Treasury, the Prudential Authority, and the KZN government—should intensify efforts aimed at saving Ithala from liquidation.

"A turnaround plan that addresses regulatory compliance, strengthens governance, and ensures sustainable recapitalisation must be urgently pursued. Our position is clear: depositors must be protected, but Ithala itself must also be preserved as an institution.

"To liquidate Ithala would not only undermine confidence in development finance but also weaken the state’s capacity to drive inclusive growth. We believe that with political will and coordinated action, Ithala can be stabilised, modernised, and repositioned to continue playing its historic role in transforming our economy,” the chairperson said.

MEC for Economic Development, Tourism and Environmental Affairs, Musa Zondi, which has oversight on Ithala, said they do not believe the latest plan would cause any further damage to the entity, pointing out that the minister has already addressed the issues mentioned in the replies.

“The negotiations between us and the national government are still ongoing to try and find a solution,” he said.

Zondi described the current situation unfair. “I listened to the president speaking about the Postbank, saying it does not have a banking licence, yet it is still allowed to operate as a bank. In our case, we have been ordered not to even refer to ourselves as a bank, so you can see there is no even-handedness,” he said.