SA Affordable Housing September / October 2020 | Page 32

FINANCE MATTERS
Debt relief measures for
housing consumers
By Paul Stober and Sue Hatton of the Banking Association South Africa (BASA)
In response to Covid-19, debt relief measures are offered by banks to
consumers. Housing consumers have been the largest category of
credit agreements where relief has been extended.
Most relief measures for individual bank customers
who are experiencing financial distress due to the
Covid-19 pandemic and the national lockdown, were
granted for mortgages and home loans.
At the request of the Banking Association South Africa
(BASA), the Minister of Trade, Industry and Competition,
Ebrahim Patel, published Government Gazette Notice 11058,
which allowed banks to discuss a collective response to the
Covid-19 pandemic. As a result, South African banks have, as at
4 July 2020, approved more than R31.19-billion in voluntary
relief to individuals and businesses affected by the Covid-19
pandemic and national lockdown.
“Cash flow relief for eligible individuals and companies
is critical to the preservation of jobs, businesses and to
maintaining a functioning economy,” says the Managing
Director of BASA, Bongiwe Kunene. “Banks hold in trust the
salaries and savings of South Africa’s workers, professionals
and businesses. It is therefore essential that we continue to
extend credit responsibly and avoid blanket debt write-offs or
any other actions that might place depositors’ funds at risk or
otherwise undermine the integrity of the financial sector.”
As at 4 July 2020, individual customers had received R18.59-
billion in relief, with banks approving 2.56 million (85.3%)
of 3 million applications for assistance from customers who
were in good standing. The R18.59-billion is the cumulative
value of instalment payments that banks have deferred for
their customers. Fees and interest on the credit agreement will
continue to accumulate during the period of deferment.
The value of the credit agreements – from mortgages (home
loans), to vehicle finance, to personal loans, among others – for
which these payments have been deferred, is R384.3-billon.
Banks consider these credit agreements to be ‘at risk’, as their
customers have indicated that they are having difficulties
servicing their credit agreements because of the economic
impact of the pandemic and lockdown. Of this R384.3-billion,
58% are mortgages (home loans) and 24% vehicle finance.
The remainder is various forms of unsecured loans.
Mortgages (home loans), at 58%, for individual customers
were the largest category of credit agreements where relief has
been extended to protect the book value at risk or asset.
Commercial, small and medium businesses received R12.6-
billion in voluntary relief, with banks approving 132 959
(95.1%) of 139 737 applications for assistance. The value of the
assets at risk, from the financial distress of small and medium
and commercial businesses, is R137.04-billion.
The period of relief initially extended to some individuals
and businesses will start expiring from end of June 2020.
Customers who require an extension in terms of the relief
already granted should contact their credit providers. A number
of banks have already announced details of further relief on
offer to their customers. The offering of each bank depends on
their individual capacity and risk management policies.
Separately, over R11.12-billion has been extended to 8 002
qualifying distressed small businesses under the Covid-19 Loan
Guarantee Scheme, which was launched in mid-May. The initial
R100-billion Covid-19 Loan Guarantee Scheme is a special
facility that is being managed by banks on behalf of the South
African Reserve Bank and National Treasury, to help small and
medium businesses, support the economy and save jobs. The
scheme currently allows qualifying enterprises to apply for
loans from their primary bank to fund three months operating
costs, such as salaries, rent and supplier payments.
LOAN GUARANTEE SCHEME BREAKDOWN
The Loan Guarantee Scheme is a commercial arrangement
that gives borrowers access to business-critical funding at low
interest rates and preferential repayment terms. However, it
is not meant to support small businesses with grants. Each
loan is subject to a credit approval process during which banks
must evaluate whether the business will be able to service its
commitments as economic activity resumes. This is to ensure
that banks lend responsibly and to protect the fiscus.
Banks will not profit from the SARB guarantee loan
scheme, but provision has been made for them to recover the
administrative expenses of facilitating the loans and the cost
of capital.
Risk-sharing mechanisms balance support for businesses
with safety of banks. Any losses are first offset against
margins earned on a bank’s portfolio of Covid-19 loans.
Further losses are offset against a guarantee fee paid to the
National Treasury by banks, which is 0.5% of the value of the
loan. Any further losses are shared: 6% absorbed by banks
and net balance by Treasury.
Some companies have indicated a reluctance to take on
further debt in a weak economy and uncertain business
environment. To increase the rate of take-up of the Loan
Guarantee Scheme, banks are currently working with the
National Treasury and the SARB to make loans more accessible
to distressed businesses. Further details will be made
available as soon as they are agreed.
South Africa is facing a challenging few months and
years. The Covid-19 pandemic is expected to peak in the
coming months putting the lives and livelihoods of South
Africans at risk. Some economists estimate that the economy
will take two to three year for the economy to recover. The
primary responsibilities of commercial banks are the safety
of depositor’s funds and the stability of the financial system.
However, as responsible corporate citizens, banks will do as
much as can be reasonably expected of them, to assist their
customers in the challenging times ahead.
30 SEPTEMBER - OCTOBER 2020 SAAffordHousing saaffordablehousingmag SA Affordable Housing www.saaffordablehousing.co.za