South African banks had, up to August 1, provided a cumulative R45.56 billion in financial relief and loan guarantees to individuals and businesses that were financially distressed due to Covid-19 and the associated lockdown, the Banking Association of South Africa (BASA) said on Monday.
“Banks have voluntarily offered financial relief of R19.34 billion to individuals and of R12.96 billion to commercial and small and medium enterprises. Separately, R13.26 billion in loans were extended by banks under the Covid-19 Loan Guarantee Scheme,” the association said in a statement.
It said that since March 2020, banks had offered payment breaks worth a combined R32.3 billion to individuals and small, medium and commercial businesses to help keep them afloat through the lockdown. More than 84 percent of individuals and 95 percent of businesses who requested help, received assistance.
South Africa entered its level five national lockdown on March 27, and has since eased restrictions to level 3, but the consequences of the initial lockdown on the local economy remain. According to research undertaken by the National Income Dynamics Coronavirus Rapid Mobile Survey (NIDS-CRAM) last month, an estimated 3 million South Africans had lost their jobs due to the lockdown.
According to BASA, the R32.30 billion in payment breaks was the cumulative amount of monthly instalments for assets and loans, which had been deferred.
“The combined value of the actual assets is R537 billion. This includes R229.27 billion for home loans, R52.06 billion in business mortgages and R47.52 billion in asset-based finance for companies. Cash flow relief for eligible individuals and businesses is critical to the preservation of quality of life, jobs, businesses and a functioning economy. Deep cuts in interest rates by the SARB is providing further relief to individuals and businesses.”
BASA said the period of relief initially extended to some companies and businesses expired from the end of June 2020, but that a number of banks had announced bespoke relief for their customers, according to the banks’ capacity and risk management policies.
These payment breaks are not debt “write-offs”, however, and interest and fees on credit agreements continue to accumulate, despite any necessary adjustment in terms.
“The primary guiding principal of commercial banks is the protection of depositor’s funds. Banks are not able to write off credit they have extended, because they hold in trust the savings and salaries of South African workers, professionals and companies. These deposits are used to extend credit for investment in productive economic infrastructure and personal loans. Depositors trust that they are able to withdraw their money on demand, with agreed upon interest,” said the association.
It said that the Loan Guarantee Scheme provided loans, substantially guaranteed by government, through participating commercial banks to eligible businesses, to help them survive until “new normal” economic activities resumed.
The South African Reserve Bank (SARB) and the National Treasury have agreed with commercial banks to guarantee R100 billion available for loans under the scheme. SARB and Treasury have announced that the scheme could be extended to guarantee up to R200 billion.
By August 1, participating banks had received 39.677 applications for the guarantee scheme.
“Of these, 23 percent have been approved by banks and taken-up by businesses, while 36 percent are in the process of being assessed. About 10 percent were rejected because they did not meet the eligibility criteria for the loan, as set out by the Treasury and the SARB, and 28 percent were declined because they did not meet banks’ risk criteria.
“The initial take-up of the scheme has been slower than anticipated and, since August 1, the terms and conditions have been revised to make it easier for small businesses to access the loans meant to cover operating expenses, like salaries and rent.”
Key changes to the loan scheme criteria, to make them more accessible, include:
- Business restart loans will now be available to assist businesses that are able to begin operating as economic activity resumes.
- Bank credit assessments and loan approvals will be more discretionary and less restrictive, although banks will still use reasonable lending practices. This is to protect the fiscus by ensuring that taxpayers’ money is used responsibly.
- The test for businesses being in good standing – having a good record of paying their bills – has been made easier and moved to December 31, 2019 from February 29, 2020, to accommodate businesses already experiencing cash-flow problems before the start of the pandemic.
South Africa’s economic and jobs crises and credit ratings downgrade predate the pandemic and the national lockdown.
Full details of the changes to the loan scheme are on the SARB, Treasury and BASA websites. Going forward, participating banks will use these changes to offer further assistance to businesses that apply for loans under this scheme.