More than three months after launching a R200bn scheme to help businesses hit by lockdown keep paying rent and salaries, only R13.26bn or 6.6% has been paid out.
When President Cyril Ramaphosa announced the relief towards the end of April, he said: “It is expected that the scheme will support over 700,000 firms and more than 3-million employees through this difficult period.”
The recent National Income Dynamics Study’s coronavirus rapid mobile survey, a nationally representative study of 7,000 people, revealed that about 3-million people have lost their jobs as a result of the lockdown.
However, by August 1 only 23% of 39,677 applicants, or about 9,125 businesses, that had applied for loans from the government-backed Covid-19 loan scheme had been granted relief. This amounts to about 1.3% of the number of companies Ramaphosa said would be helped, and a similarly tiny fraction of those who have lost their jobs.
The scheme has now loosened some lending criteria from August 1 and will allow businesses to use the loans to restart their activities rather than forcing them only to use the money for operational expenses such as rent and salaries.
In June, research house Intellidex analysed why the scheme was not working and concluded that it had come “too late” — seven weeks after lockdown when some businesses had already retrenched staff and cancelled leases. Intellidex also concluded that the strict lending criteria prevented businesses from using the loans to adapt their operations to lockdown, such as remodelling a restaurant to improve social distancing.
It also said the banks’ lending criteria were too strict despite the lack of risk to them; that the prime interest rate repayment was too high for some businesses that had limited appetite for more debt; and that the six-month payment holiday before repayments would be due was too short. Some businesses, such as those in the tourism sector, may only reopen in 2021.
Under the Treasury-backed scheme, banks must absorb the risk of the first 6% of the loan should businesses default on repayments, while the SA Reserve Bank is liable for the risk of 94% of any such losses.
The scheme was part of Ramaphosa’s R500bn package to keep the economy afloat, announced on April 21. However, the loans have been extended agonisingly slowly, with just R10.6bn lent by July 7 and less than R3bn added in the past month. The loans must be paid back within five years at the prime interest rate after a six-month lending holiday.
A Banking Association SA (Basa) media statement reveals that, to date, the banks have offered more relief than the scheme has granted loans, in the form of payment holidays to individuals, homeowners and businesses. A payment holiday is not a debt write-off — the debt, interest and fees remain in place.
Basa data shows that 84% of individuals applying for ordinary payment holidays were successful. Personal and home loan payment holidays totalled R19.34bn, and 95% of small and medium-sized businesses received delayed loan repayment terms from their banks equalling R12.96bn.
However, Basa on Monday revealed that the government-backed scheme has been less successful. It showed 10% of applicants were rejected because they did not meet the eligibility criteria for the loan, 36% were in the process of being assessed, and 28% were turned down “because they did not meet banks’ risk criteria”.
Intellidex co-founder Stuart Theobald said “the current lending figures make it clear the trend as we perceived it in June hasn’t changed, but the changes made on August 1 are important and necessary”.
Basa said with demand for the government-backed loan scheme having been “slower than anticipated”, since August 1 the terms and conditions had been revised to make it easier for businesses to access the funds. New criteria require businesses applying for help only to have been in good standing with their bank until December 2019, rather than February 2020.
“Bank credit assessments and loan approvals will be more discretionary and less restrictive, although banks will still use reasonable lending practices,” Basa said. “This is to protect the fiscus by ensuring that taxpayers’ money is used responsibly.”
Initially only aimed at smaller businesses with annual turnovers of R330m or less, all businesses can now apply for help. But some companies have been scared off by loan criteria such as requiring that company directors or owners stand personal surely if the business defaults.
Some of the changes made to the scheme from the beginning of August fail to meet the challenges highlighted by Intellidex, including the lack of incentive for the banks to lend. “However, the lack of proximate profits on the scheme inevitably means that banks will direct resources to other more immediately profitable activities.”
In June, Intellidex concluded that if the scheme — 40% of the government’s economic stimulus package — did not work as intended, they would adjust their GDP projection from a 10.4% contraction as a result of the pandemic to -15.5%.
“This is clearly a far worse economic outcome and is precisely what the R500bn package was intended to avoid.”
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