National Treasury and the Banking Association of South Africa (Basa) have committed to having ongoing engagements regarding the design of the R200 billion Covid-19 loan guarantee scheme, which has seen an uptake of just 7% since it was launched in May.
In an update released on Thursday, Treasury said it hopes small and medium businesses will have more appetite to take up loans from the guarantee scheme, which has disbursed R14 billion to nearly 10 000 businesses since August 1.
Another 15 000 applications are still being processed by the banks.
Open to change
“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,” said Finance Minister Tito Mboweni.
“We will continue to evaluate the scheme and make changes to improve it,” he added.
The update comes after a meeting that saw Treasury, Basa and the South African Reserve Bank (Sarb) assess the various interventions employed by the banking sector to support the economy, especially in the country’s move to Level 2 lockdown.
Last month changes were made to some of the criteria to make it easier for businesses to access the scheme, after concerns were raised that the initial requirements were too onerous and would result in government’s biggest economic support intervention not having the desired impact of saving small businesses and jobs.
Treasury has provided an initial R100 billion guarantee to participating banks through the Sarb. Should the demand be a greater, there is an option for this to be extended to R200 billion.
The changes included the introduction of business restart loans to help businesses reopen their operations as economic restrictions were eased. Banks were given an allowance to use at their discretion when conducting credit assessments, and no suretyships are “explicitly” required in terms of the scheme.
The turnover cap has been replaced with a maximum loan amount of R100 million. Banks may also provide syndicated loans for amounts larger than R50 million.
Loans are now also available over a longer term, with the drawdown period extended from three to six months.
“Firms are reluctant to take on additional debt,” said Treasury.
“However, the recently announced move to Level 2 [will] support the reopening of significant parts of the economy. With firms adjusting to the next stage of the Covid pandemic, it is hoped that the economic recovery will strengthen and the demand for credit will improve.”
The banks say one of the major reasons for the low uptake is the debt payment relief the banks provided at the beginning of the National State of Disaster.
By the end of the first week of August, they had provided voluntary payment relief on loans to the value of R537 billion, which was partly supported by the regulatory changes made by the Sarb’s Prudential Authority.
Basa has also called for Covid-19 relief measures to be underpinned by structural reforms touted by Mboweni for the country’s economic recovery.