South African Banks Seek Loan Guarantees Amid Virus Fallout

Roxanne Henderson

(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 criticized 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.

An index of five South African banks rose 7.2% on Friday, paring losses this year to 35%.

The former public-sector banker also said:

If a guarantee program is launched “it would be presumptuous of us to expect that the government is going to come in at whatever level. We just have to be realistic and pragmatic around what it is we are asking for.”“The intent of all of this is to keep the economy alive, and, by extension, this is not the time for banks to be laying off people,” though there is no formal statement from banks halting job cuts.Because South Africa “started in a negative space, already in a technical recession, we have to get ready to work with all scenarios.”“We have to be prepared in our industry to play a meaningful role because we are the facilitators of how the economy works.”

(Updates with banking index in eighth paragraph.)

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