Banks provided R50bn in financial relief over lockdown

The country’s banks have provided over R50 billion in financial relief in response to the Covid-19 pandemic and national lockdown, according to the Banking Association South Africa (Basa).

The association representing the country banks says from April 2020 to October 24, 2020, about R33.61 billion in payment breaks on credit agreements and R16.71 billion under the state-backed loan guarantee scheme had been offered, via the voluntary relief initiative.

This initiative, which fell under a special dispensation from the government and its regulators, has since come to an end.

Basa says over 83% of individuals and 95% of businesses who requested help – with personal and home loans, vehicle finance, business mortgages and credit facilities – received assistance.

The association says this cash flow relief for over 2.68 million credit agreements for individuals, and 135 540 businesses was “critical to the preservation of quality of life, jobs, businesses and a functioning economy.”

This relief, however, is not indefinite. Basa says those who are obliged to resume repayments of their loans at the end of the deferral period are required to do so.

“The relief solutions including payment breaks were not debt ‘write-offs’, as banks must continue paying interest to customers who have deposited funds with them and must recover their operating costs to remain sustainable businesses.”

It advises those who are still in financial distress as a result of the Covid-19 pandemic and national lockdown to approach their bank for further assistance.

“It is standard practice for banks to assist customers in good standing experiencing temporary financial distress in the normal course of business. Individual banks can offer their customers tailored assistance, depending on their risk management policies.”

State-backed loans

Basa notes that the banks are continuing to provide loans for salaries and other operating and start-up costs to small businesses under the Covid-19 Loan Guarantee Scheme – a partnership between the National Treasury and the South African Reserve Bank (Sarb).

The loan scheme has, however, failed to live up to high expectations that it could provide much-needed liquidity to local struggling businesses.

Up to R200 billion was made available but only 10% of this was accessed.

The association say it looks like demand for the scheme remains below original expectation, despite banks having been granted more flexibility to assess the ability of businesses to repay their Covid-19 loans.

“Business owners are reluctant to incur more debt, while uncertain business conditions and a weak economic outlook hamper their ability to generate sustainable income, from which they need to repay their loans.”

It says the slow pace of economic reform, along with an unreliable electricity supply and lack of inclusive growth has also reduced opportunities for enterprises and their need to access credit.

Even so, based on present trends, the banks expect to extend R24.41 billion in Covid-19 loans to enterprises by January 2021, largely due to the prevailing weakness in business and economic conditions.

Of the 44 912 applications for loans 37% were rejected because they did not meet the eligibility criteria for the loan, as set out by the Treasury and the Sarb or because they did not meet banks’ risk criteria.

“Treasury is continuing to review the reasons for the rejection of loan applications, with a view to making the scheme more accessible, while ensuring that taxpayers’ funds are not exposed to undue risk as a result of loans not being repaid.”

Of those who applied, 27% have been approved by banks and taken up by businesses, while 15% are in the process of being assessed.