Banks told to cut lending rates in SA

‘We want banks to lend more than they would otherwise lend, but we don’t want them to be reckless and take excessive credit risk.’
Image: Moneyweb

South African banks are facing political pressure to adjust the rate they use as a reference to determine interest charges after measures to contain the coronavirus roiled the economy, according to the nation’s bank regulator.

The so-called prime lending rate is set at 350 basis points above the repurchase rate determined by the South African Reserve Bank’s monetary policy committee. Riskier borrowers would be penalised by being charged higher interest relative to the prime rate. That same spread applies for interest charged under a government-backed loan-guarantee program started by the Banking Association South Africa and National Treasury to help small companies hit by lockdown measures to slow the spread of Covid-19.

“The banks didn’t want to use the term ‘prime rate’ because that has changed once and there’s lots of political pressure to change that spread again,” Kuben Naidoo, a Reserve Bank deputy governor and also head of the Prudential Authority, which regulates lenders, said on a conference call hosted by money manager Ninety One.

The prime rate, and the lending rate for the loan-guarantee program, is currently 7.25%, after the Reserve Bank cut the repurchase rate to 3.75% in May. The spread widened by 50 basis points in September 2001 due to technical changes. A study done by the association and central bank staff in 2009 found that while the prime rate is immaterial to the setting of lending rates it does make it easier for customers to compare and negotiate with banks.

Political pressure is mounting amid slow demand for the R200 billion ($12 billion) loan-guarantee program, which mimics a similar scheme in about 51 countries, Naidoo said. The four biggest lenders — Standard Bank Group, FirstRand, Absa Group and Nedbank Group — have seen take-up of about R2-3 billion each, he said.

“If the crisis is longer and deeper it may be used a bit more,” he said. “We want banks to lend more than they would otherwise lend, but we don’t want them to be reckless and take excessive credit risk.”

© 2020 Bloomberg

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Fanks, but no fanks!

Most SA Banks have lost their sense of National Pride and have stop taken on risk. They aren’t willing to fund the dynamic entrepreneurs of tomorrow. It’s very sad that they screw businesses and clients with high fees. Capitec is growing because they assist their clients and have a value for money offering. Standardbank and Investec without Stephen Koseff has been very disappointing.

These banks are taking the public for a ride. Some institutions do personal loans at a fixed 27 % to a client with very good record?????/eish, the Govt must stop this. clients beware: do not take personal loans at these very well known institutions, even allthough thay are advertising on national TV.

Within a macro-economic environment with a contracting gross output (/GDP), the ability of banks to stimulate growth through money supply is completely stunted. Interest rates have become virtually meaningless.

The precepts of the information age were perpetual growth. These fundamentals are now behind us.

We live within the domain of the 4th industrial revolution now. Money is no longer a guide as to whether an endeavour is good or bad- these in terms themselves are duality based concepts and do not apply in a quantum reality.

Pursuing higher, purposeful activities will result in savings of energy in solving everyday problems of life. Either solving them in a totally new way, or an easier way, or a better way.

So, if I start thinking about the energy the way most of us have been brainwashed to think about money- ie if I spend x amount of energy then I want it to generate and/ or save 3 X more energy, then I have laid the foundations for an organically sustainable business model.

This might require some financing at certain key “tipping points” but in essence, the discounted cash flow model of valuation is no longer valid.

A model based on sound underlying energy principles will always result in long term value creation. This value can be measured in terms of positive attitudes, health, freedom, cooperation, resources, phenomena- and, yes- somewhere in the mix- cash!

In contrast, if I use money as the only means of measuring value- I will lose all the other values.

This development in the money market has at least partially put a leash on the monetary conundrum. Money is a very poor way of making long-term sustainable investment decisions for this planet.

“Money makes the world go round” still rings true.

Having said that, money does not always leads to happiness (but it surely makes life very comfortable!)

Your words “Money is no longer a guide…” and “money as the only means to measure”, and “Money is a very poor way….” ….uh, uhm since money is not that highly valued…..err, PLEASE send me some of your money (I’ll supply you my number). What you give away must be seen as merely money which has little value, as it can’t guarantee you happiness. It WILL make me VERY HAPPY however 😉

Mentioning a ‘higher purpose’….ACTS 20 v 35 states “It’s more blessed to give than to receive”. Now there is your motivation 😉
When & where can we meet? Should I be looking out for a friendly Celtic guy with a large money bag…?

Oh I forgot how you need things s-p-e-l-l-e-d out Maatjie… the gold is in the use of the underlying values when deciding what is the next best thing to do with your time and effort… use your higher nature and the higher values will make you wiser in your choices and planning and wealthier across the spectrum (of positive attitude, physical health, harmony in your relations, freedom from fear etc etc). Higher values mean you will do a lot better than stalking me buddy!

…no stalking, in fact visited your Twitter post a year ago about a humble, community project you were involved in 🙂 and came off impressed. Your unique description of being a ‘Celtic Bushman’ seems to’ve stuck.

And your aim for reaching a higher purpose. “Wealthier across the spectrum?”…you imply money.

(sorry, I couldn’t resist the temptation of “poking” at you 😉

I have lots of bonds, with a perfect payment record. Why do the banks charge me such a big margin? The reserve bank has dropped rates, maybe the banks could reward good clients with a 1% drop. I can inject that into the economy by spending and creating jobs.

South African banks, predominantly the big 4 are the most risk averse banks in the world. Dont expect that to change with a short story in the media, their shareholder profits are far more important to then than assisting the economy grow.

End of comments.

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