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Standard Bank Group has raised the alarm about proposals to reactivate a government-backed credit program, designed to help South African companies hit by Covid-19.
While SA’s largest lender is open to talks on how to restructure the R200bn program to boost demand, it rejects suggestions to swap out loans 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 banks for failing to quickly disburse credit under the initiative launched in May. The Banking Association of South Africa (Basa) 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 waive the payment of loans already issued, the cost “would be too high at a time when SA is under extreme fiscal stress,” according to Tshabalala. Meanwhile, the nation needs its resources to pay for vaccines and other medical supplies, he said.
Help plan
Last year, the government released a 500 billion rand support package by prioritizing spending from existing budgets. Banks were tied up to distribute government-guaranteed loans to small and medium-sized businesses, starting with R100bn in disbursements before doubling.
The national treasury did not immediately respond to questions about the future of the program after April 11. The Reserve Bank of South Africa referred the inquiries to the 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.
Bloomberg
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