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Standard Bank raises alarm on loan-to-grant proposal

Says plan would ‘set a dangerous precedent’.
Image: Bloomberg

Standard Bank Group  has raised the alarm around proposals to revive a faltering government-backed credit program designed to aid South African businesses battered by Covid-19.

While South Africa’s largest lender is open to talks on how to restructure the R200 billion programme to drive up demand, it rejects suggestions to swap into grants the loans that have been provided, chief executive officer Sim Tshabalala said in the bank’s annual report.

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“Apart from the unfair burden that a conversion to grants would place on our depositors and investors, and on taxpayers, we think that converting loans into grants would set a very undesirable precedent,” he said.

President Cyril Ramaphosa has criticised the nation’s biggest banks for failing to speedily disburse credit under the initiative started in May. The Banking Association of South Africa has said that total allocations were unlikely to reach 10% of the program’s capacity.

The programme is due to expire on April 11. A review by the banking association found many business owners had opted for relief arrangements with their individual banks over loans from the programme.

If the decision is to forgo payment of loans already issued, the cost “would be too high at a time when South Africa is under extreme fiscal stress,” according to Tshabalala. The nation meanwhile needs its resources to pay for vaccines and other medical supplies, he said.

Relief plan

Ramaphosa’s administration last year unveiled a 500 billion-rand support package by re-prioritising spending from existing budgets. Banks were roped in to distribute loans guaranteed by the government to small- to medium-sized businesses, starting with 100 billion rand of disbursements before doubling up.

The National Treasury didn’t immediately respond to questions around the future of the program after April 11. The South African Reserve Bank referred queries to the National Treasury.

While there was disappointment around how the program has fallen short of its capacity, efforts by banks could only go so far in counteracting the effects of the country’s deepest economic contraction in a century, Tshabalala said.

“Good business people are never keen to take up a loan unless they are confident about their capacity to use the funds productively and about their ability to repay the loan,” he said.

© 2021 Bloomberg


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While at it, Standard Bank, may want to remind the Governor of SARB that banks have not paid a dividend at the behest of government, and it is thus time to loosen the tight grip on the dividend due to investors. I will take 100% of 0.1c rather than 100% of 0, thank you very much. We can’t keep giving banks interest free loan(s) and grants at the expense of investors.

Typical ANC think : First commit to a course of action to get a benefit – thereafter trying to walk away from it without fulfilling their side of the agreement.

How do you take out a loan and you have no idea how you will repay it???

This is anc logic!! The leader is a billionaire typically because of this sort of practice. Get things for free and shareholders pay.

This country will NEVER get anywhere unless the anc disbands.

The big 5 banks represent the worst of SA’s monopolies and they have helped entrench inequality in SA.

Loans should be converted to grants.

You normally make a lot of sense. What happened this time around?

A transaction with a bank or a grocery store is a voluntary exchange between free individuals. Nobody is forced to do business with the bank. How can they be described as monopolies when they are regulated by the Banks Act and the Reserve Bank?

VBS came and went for a reason. The old African Bank and the Land Bank turned their loans into grants involutarily because the borrowers ran away. The entire banking system, followed by all economic activity, will go down this road if they followed your advice.

Face it, your salary, the affordability of food, all municipal services and the value of your house depends on the health of the banking system.

Thanks. Firstly the banking sector is monopolized in SA. Secondly, every SA bank has been shown up to be complicit in state capture (directly or indirectly).

I agree with your last statement. What does that say about the efficiency of KYC and money laundering legislation? All these costly and time-consuming rules and regulations with nothing to show for it. Billions have been stolen from the state and siphoned off through the “best-regulated financial system on earth”.

Goes to show- the regulations are only as good as the regulator, who is only as good as the state, who is only as good as the majority political party, who is only as good as the average voter.

For most South Africans, including senior politicians, there is no practical difference between a loan and a grant. In reality, the loan agreement is only as good as the character of the lender. The majority do not understand or respect property rights. Therefore, to them, a loan is simply a disguised grant. When they feel that the system won’t give them a handout straight away, they go through the formal process to apply for a loan which they never intend to repay. The collectivist culture believes in the sharing of all resources. For them, a loan application is simply a modern way to benefit from the savings of another person. This is similar to expropriation without compensation, and it explains why it is such an obvious and acceptable solution to them.

The bankrupt African Bank, the bankrupt Land Bank and all the bankrupt ANC municipalities have experienced this tendency of debtors to unilaterally convert the debt into a grant. The ANC wants to take it a step further now. They want to enable voters to turn loans into grants at a faster rate, unrestricted by the various onerous requirements of private banks. They propose the new State Bank as an SOE that turns loans into grants, as part of a vote-buying exercise.

They ignore the fact that there is a depositor, a saver, an investor, a taxpayer, behind that loan. Anybody who has money to save is a capitalist per definition. A socialist sees the expropriation of a capitalist as a noble endeavour. It is clear that the Governor of the Reserve Bank is the only person who stands guard at the barrier between the collectivist mindset and the savings of the average depositor.

I’ve got a lot of sympathy for people whose businesses suffered due to Covid-19 lockdowns, and am glad the loans probably helped many get through. Some of this hardship was unavoidable to curb the spread of the virus, such as bans on travel and gatherings, while other government bans like on alcohol and tobacco were nonsensical, and for which the ANC should publicly be blamed, named and shamed. The most humane approach would be to allow leniency with repaying debts, such as extended repayment periods, payment holidays, favourable interest rates or simply making larger provision for bad debts, but not to simply convert it to a grant. Debt usually prescribes after three years, and that has to be enough time in spite of the virus to re-focus your business activities and recover to be able to begin contributing towards the economy again and starting to pay back.

The scheme loans were supposed to be assessed on normal credit risk terms in terms of affordability, government guarantee was merely boosting the reserve score impact by way of guarantee from taxpayers.

Making it a grant is absurd and each such grant should be published in full as its is purely a transfer from taxpayers. Part of loan evaluation is full FICA back to eventual warm bodies in the borrower and its shareholders’ structures.

We deserve to know!!!!

The Banking Ass says many opted for relief from their individual banks rather than take up a government-backed loan, according to the article.

Certainly sensible. However, banks -Capitec specifically – wasted no time in making money from distressed individuals (not business accounts) by exploiting those who are financially less savvy, especially when it comes to interest charges; a single parent Capitec client who needed a loan for school fees after her salary got slashed with the first lockdown was told she needed to open another account such as a clothing account, before she could qualify for the bank loan. Capitec also made it too difficult to claim credit insurance the mother was legally entitled to; there was simply too much red tape and staff never notified her of the outcome of her application as they had promised to do. People in retail work long hours and mostly don’t have time off to have to keep going back to a bank for an answer – the incident certainly left many questions about Capitec…

Standard Bank debt department never told me when I applied for more relief until I could rent my house out that I have mortgage insurance. Their debt department should of told me that I have mortgage insurance and that I must contact their mortgage insurance department.

The banks break the law as well when it comes to repossing homes and cars by not following the correct legal procedures always. If you not a lawyer you won’t know that the banks are jumping legal steps when repossing your house or car.

When I asked Standard Bank Debt Department for relief they never once mentioned to me that I have mortgage insurance and that I should contact their mortgage insurance department. When I found out I had mortgage insurance and told them this, all they said was ‘Its not our department.” The banks take advantage and act ignorant to score. The real winners of this lock down will be the banks. They will make so much more interest because businesses and individuals have to lend more money now to survive.

End of comments.





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