The South African government is considering a ‘funding for lending’ scheme for banks in response to the country’s coronavirus crisis, says South African Reserve Bank (SARB) deputy governor Kuben Naidoo.
In an interview with Reuters, Naidoo said that National Treasury is currently considering the scheme and would be responsible for the initiative.
“We’re not the primary drivers, but I know the Treasury is considering these issues,” Naidoo said. “The central bank would be involved, our law doesn’t allow us to lend unsecured, but as part of a broader design of a scheme we’re prepared to be involved.”
A number of the country’s banks have announced that borrowers whose accounts were up-to-date before they were impacted by the Covid-19 pandemic will be able to defer their payments to lenders or to pay reduced instalments.
Some banks are also offering payment holidays across the board on an opt-in basis while others have chosen to apply turnover limits to ensure they assist only the most vulnerable of their customers.
Despite these initiatives, analysts have called for a more cohesive approach from government and the private sector in providing financial relief.
While South Africa’s banks have made a constructive effort to cushion customers from the impact so far, a much broader response is needed, said James Formby, chief executive officer of Rand Merchant Bank.
“The challenge to the economy will only be overcome if government, regulators, the broader financial-services industry and business work together,” he said. “There are very encouraging signs that this is already happening.”
The SARB and the South African financial sector regulators, the Prudential Authority and the Financial Sector Conduct Authority (FSCA) have already announced several mitigation measures to support the economy and companies, says law firm Webber Wentzel.
On 19 March 2020, the SARB decided to cut the repo rate by 100 basis points. In making this decision the central bank considered, among other things, the impact of Covid-19 and the monetary policy in major advanced economies.
At the same time, the Prudential Authority in support of Covid-19 relief initiatives has proposed two draft directives in respect of banks. These draft directives are aimed at:
- Temporarily reducing Pillar 2A minimum capital requirements for banks to zero so that banks will be allowed to conduct business with a zero percent Pillar 2A capital requirement without any regulatory action being taken;
- Providing factors for restructuring of retail loans due to Covid-19 related factors. These restructured loans will be classified as “Covid-19 related restructures”.
“The FSCA has also put in place several arrangements in respect of the submission of statutory returns and fit and proper related deadlines due to the Covid-19 crisis,” Webber Wentzel said.
“The FSCA has advised that it will do its best to accommodate anyone that is experiencing problems in complying with specific regulatory requirements because of the impact of Covid-19.”