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The South African Banking Association (Basa) says that Covid-19 loan applications are expected to peak soon, due to prevailing business and economic conditions.
The association said 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 must repay their loans.
“The slow pace of economic reform, unreliable electricity supply and the lack of inclusive growth, with consequent weakness in consumer and business confidence, has also reduced opportunities for businesses and the need for credit.
“The devastating 51% contraction (saar) in the South African economy in the second quarter of this year underscores the desperate need for structural economic reform, sustainable fiscal management and bold political leadership to ensure its successful implementation,” he said.
Based on current trends, banks expect to extend probably between R24.41 billion and R43.74 billion in Covid-19 loans to businesses by January 2021.
The Reserve Bank and the National Treasury have agreed with individual commercial banks to allow loans totaling R67 billion under this scheme. The Reserve Bank and the National Treasury have announced that the plan could be expanded to 200 billion rand, if necessary.
Regardless of the loan guarantee scheme, since March 2020 banks have offered pauses of payment, worth a combined R33.49 billion, to individuals and small, medium-sized and commercial businesses to help them stay afloat during closing.
More than 84% of the people and 95% of the companies that applied for help received assistance, Basa said.
Liquidations about to skyrocket
Business restructurings and liquidations will skyrocket as companies grapple with Covid-19-related costs and other balance sheet-related pressures, says Dumo Mbethe, CEO of Momentum Corporate.
Data from Statistics SA shows that the total number of settlements decreased 7.1% in the three months through July 2020 compared to the three months through July 2019.
However, in July 2020 there was a year-on-year increase of 5.5%, with an increase in voluntary settlements of 16 cases. Mbethe said that since these figures come from the courts, whose activity was seriously affected by the pandemic and the shutdown, we are likely to see a significant increase in the near future.
“Several companies have already announced widespread downsizing exercises and more are expected to follow,” he said.
“This has serious implications for the many South Africans whose only life insurance coverage is group life coverage that they have through their employer. Losing their jobs also means they lose their vital coverage in the middle of a pandemic. “
Mbethe said laid off employees should speak with a qualified financial advisor for personalized advice to help them balance their immediate short-term expenses with their long-term retirement goals.
Households often perceive luxury expenses as non-negotiable necessities. Reducing “wants instead of needs” will free up money to meet their immediate financial needs, and this could help them preserve all or at least some of their retirement savings, she said.
Payments to date
Basa says there has been an increase in the acceptance rate of the Covid-19 loan guarantee scheme, even though demand for credit from the private sector continues to slow, due to uncertain business conditions, unreliable electricity supply and a weak economy.
The association said that, as of August 29, banks had been able to provide cumulative relief of R48.04 billion to South African companies: R33.49 billion in interrupted payments and R14.54 billion under the guarantee scheme. of loans.
Participating banks had received 42,202 loan applications from their guarantee scheme clients. The average size of a loan repaid under the scheme is 1.27 million rand.
This means that if all existing loan applications were granted, with an average value of 1.27 million rand each, the total demand for the scheme would be approximately 53.6 billion rand.
Of all the applications, 25% have been approved by banks and accepted by companies, while 37% are in the evaluation process.
35% of the applications were rejected because they did not meet the eligibility criteria for the loan, as established by the Treasury and the SARB or because they did not meet the risk criteria of the banks.
The main reasons, so far, for the rejections were that the companies were not in a “good situation” or that the value of the loan requested was too high and repayments were unaffordable for the company, Basa said.
Read: South Africa’s 5 Biggest Banks Comparison – Profits vs. Customers vs. Market Cap vs. Reach
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