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There was disappointment at how the program has not met its capacity.
- A 200 billion rand initiative to provide SMEs with Covid-19 relief is due to expire on April 11.
- President Cyril Ramaphosa has criticized the country’s largest banks for failing to disburse credit quickly under the initiative.
- The CEO of Standard Bank rejects suggestions to redeem loans that have been made for grants.
Standard Bank Group has sounded the alarm around proposals to reactivate a government-backed credit program designed to help South African companies hit by Covid-19.
While South Africa’s largest lender is open to talks on how to restructure the R200 billion program to boost demand, it rejects suggestions to redeem loans that have been made for grants, CEO Sim Tshabalala said in the bank’s annual report. .
“Aside from the unfair burden that a conversion to grants would impose on our depositors and investors, and taxpayers, we believe that converting loans to grants would set a very undesirable precedent,” he said.
President Cyril Ramaphosa has criticized the country’s largest banks for failing to quickly disburse credit under the initiative launched in May. The South African Banking Association has said that total allocations are unlikely to reach 10% of program capacity.
The program will expire on April 11. A banking association review found that many business owners had opted for relief agreements with their individual banks rather than program loans.
If the decision is to forego the 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. Meanwhile, the nation needs its resources to pay for vaccines and other medical supplies, he said.
Relief plan
Ramaphosa management introduced a R500 billion support package last year by reprioritizing spending from existing budgets. Banks were tied up to distribute government-guaranteed loans to small and medium-sized businesses, starting with R100 billion in disbursements before doubling.
The National Treasury did not immediately respond to questions about the future of the program after April 11. The South African Reserve Bank referred the inquiries to the National Treasury.
While there was disappointment at how the program fell short of capacity, the banks’ efforts could only go so far to counteract the effects of the country’s deepest economic contraction in a century, Tshabalala said.
“Good entrepreneurs are never willing to take out a loan unless they are confident in their ability to use funds productively and in their ability to repay the loan,” he said.
