South African banks seek loan guarantees amid virus fallout

Bloomberg

South African banks are pushing for the creation of a loan-guarantee program to boost the flow of credit as lenders ramp up efforts to help clients cope with the coronavirus fallout.
The nation is in its second week of a 21-day lockdown to contain the spread of Covid-19, which if extended could further cripple an economy already in recession. While the banking industry has started rolling out relief measures to customers, such as payment holidays and fee waivers, it has been criticised for doing too little, too slowly.
“There is at the moment work that we are doing on creating a loan-guarantee scheme,” said Banking Association South Africa Managing Director Bongiwe Kunene. “I must hasten to say that it will not be the same as those that we have seen from Canada, Switzerland and other countries.”
What will differ is the extent to which the South African government is able to participate given its fiscal constraints, she said by phone. Years of mismanagement and corruption has resulted in the government heading toward the highest budget deficit in almost three decades.
“We are very much cognizant that we will have to pull this together with the National Treasury,” she said. “We will also need to have further relaxation of regulatory standards.”
The Treasury and the central bank are considering the creation of a so-called funding-for-lending program to provide guarantees, Kuben Naidoo, chief executive officer of the Prudential Authority, said earlier this week. Banks have been urged to withhold dividends and bonuses after the regulator eased some capital and accounting rules to free up capital to spur lending.
The industry is considering what steps it can take within South Africa’s existing regulations and economic backdrop, and reaching out to multilateral development institutions, said Kunene, who joined the banking association from Standard Bank Group Ltd. at the beginning of April.
While work on a possible loan-guarantee scheme is far from done, the country’s bankers are “talking with everybody about this,” she said.