R537bn loan reprieve provided for COVID-19 hit businesses

With many businesses detrimentally affected by the COVID-19 lockdown, South African banks during this bleak period have provided their clients with voluntary relief on loans with a book value of R537 billion.

This was confirmed by the board of the Banking Association of South Africa (BASA) during a meeting with Finance Minister Tito Mboweni on Wednesday. Also in attendance was the South African Reserve Bank (SARB) Governor Lesetja Kganyago, his Deputy Kuben Naidoo, the Deputy Minister of Finance, David Masondo, and National Treasury officials.

During the meeting, stakeholders discussed measures banks were taking to support the economy, as the country moved to level 2 of the COVID-19 lockdown.

The BASA board, which represents all registered banks, is composed of bank chief executives.

In a statement issued on Thursday, National Treasury said bank CEOs reported the success of a number of initiatives undertaken by the industry to support their clients during this difficult time.

“In total, as at the end of the first week of August, banks had provided voluntary relief on loans with a book value at risk of R537 billion. This voluntary relief was in part supported by regulatory changes made by the Prudential Authority of the South African Reserve Bank,” Treasury said.

The banks also provided an update on the loan guarantee scheme.

In this regard, as at 1 August, the scheme had lent R14 billion out of an initial R100 billion, benefiting almost 10 000 businesses, with another 15 000 applications still being processed by banks.

“It was noted that demand for credit is particularly low at present, largely due to the earlier voluntary assistance provided by the banks when the State of National Disaster was declared,” said Treasury.

This was due to firms being reluctant to take on additional debt.

“However, the recently announced move to level 2 would support the re-opening of significant parts of the economy. With firms adjusting to the next stage of the COVID-19 pandemic, it is hoped that the economic recovery will strengthen and the demand for credit will improve,” BASA said.

With this in mind, changes have been made to the design of the loan guarantee scheme. These include a Business Restart Loan and changes to credit assessment criteria.

Minister Mboweni said: “The banking industry’s ongoing openness to discuss design improvements is particularly appreciated, and I note that many countries have adjusted the design of their respective schemes from time to time to respond to changing circumstances. We will continue to evaluate the scheme and make changes to improve it”.

BASA has emphasised the need for COVID-19 economic relief measures to be complemented by structural reforms for South Africa, as proposed by the Minister of Finance to turn the corner in its economic recovery.

Ongoing engagement between the Banking Association and National Treasury would inform further design changes that may be required to ensure that more small to medium sized enterprises use the scheme to support their recovery.