It should now be much easier for businesses to borrow from banks in terms of the Covid-19 guaranteed bank loan scheme, thanks to changes made last week. But this depends on whether banks play their part in pushing R200bn of loans into the economy.
Instead, loosened criteria will mean more losses for the Treasury but we don’t know what would be reasonable. It has hinted it is lining up external funding to cover losses on the second half of the R200bn, which might fix this issue, if we ever get the volumes out the door to reach that point. If they did, their claims in terms of the scheme could be rejected. That has now changed – the wording is now about “reasonable” credit process in line with the “emergency spirit” of the scheme. There is a suitable level of vagueness to cover banks who take a liberal approach to granting the loans.
The incentives for banks are tricky. They still face writing off the first 6% of any loans that are made. That is R12bn of losses across the industry if the full R200bn is lent, though potentially spread over several years . They must also use any margin they earn on the loans to cover further losses before they can claim on the guarantee. So, the scheme is not intended or likely to be profitable.
Of course, more could be done. Rates could be reduced, the use of proceeds could be widened, and the cash flows could be made up front.