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Covid-19 Loan Guarantee Scheme Update

22 February 2021 Banking Association South Africa (BASA)

As of 30 January 2021, R17,9 billion in loans had been approved by banks and taken up by small businesses under the Covid-19 Loan Guarantee Scheme. This represents an increase of just R60million over the past two weeks, with only an additional 261 applications received by participating banks, of which 97 were approved.

Based on present trends, the demand for loans from the scheme is expected to decrease even further in the coming weeks. The reasons that the demand for the scheme remains significantly below original expectations, remain essentially the same:

• Business owners remain reluctant to incur more debt, due to the challenges presented by inconsistent policy and regulation, uncertain business conditions and a weak economic outlook. The slow pace of economic reform, an unreliable electricity supply and lack of inclusive growth, as well as the subsequent weak consumer and business confidence, have also reduced opportunities for enterprises, and the associated need for credit.
• As part of their usual business, banks continue to offer relief to customers who are in financial distress. Banks’ assistance to their customers and their contribution to the recovery and reconstruction of the economy goes well beyond the Covid-19 Loan Guarantee Scheme.
• As implementing partners of the loan scheme, banks have to ensure that taxpayers’ funds are not exposed to undue risk of the loans not being repaid. Covid-19 loans can only be extended to businesses that meet the criteria set out by the Reserve Bank and National Treasury, and banks’ prudent risk management policies. Only the Reserve Bank and National Treasury can make changes to the operation and criteria of the scheme.

Ahead of the National Budget Speech, it is worth reiterating that the Covid-19 Loan Guarantee Scheme on its own cannot address all of the financial and business challenges facing small enterprises, many of which pre-date the pandemic and were caused by a lack of inclusive economic growth and uncertain business conditions. We urge theminister to consider other support programmes to ensure small and medium enterprises can survive the present economic crisis, like reducing red-tape and improving the ease of doing business.

As of 30 January 2021, the scheme received a total of 48 627 applications for loans, of which 27% were approved by banks and were taken-up by business owners. Five percent of all the applications are still in the process of being assessed. Forty-seven percent of applications rejected were because they did not meet the eligibility criteria for the scheme, as set out by the Treasury and the Reserve Bank or because they did not meet banks’ risk criteria. The main reasons for rejection are that the requested value of the loan was too high for the business to be reasonably expected to be able repay it; or the enterprise not being in good financial standing before the pandemic.

Seventy-two percent of the loans approved went to enterprises with a turnover of up to R20 million.

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