Business owners are reluctant to incur more debt while uncertain business conditions and a weak economic outlook hampers their ability to generate sustainable income from which they can repay the loans, the Banking Association of South Africa (Basa) said on Sunday.

Despite uncertain business conditions and a weak economy reducing demand for credit, South African banks had been able to provide a cumulative R46.22-billion in financial relief and loan guarantees to South African businesses and individuals financially distressed due to the coronavirus (Covid-19) pandemic and national lockdown as at August 15, Basa said in a statement.

Banks had voluntarily offered financial relief of R19.45-billion to individuals and of R13.38-billion to commercial and small and medium enterprises. 

This assistance from banks significantly reduced demand for help from the Covid-19 loan guarantee scheme, which offered small businesses loans to cover their operating expenses like rent and salaries until "new normal" economic activity could resume. Banks extended R13.39-billion under the Covid-19 loan guarantee scheme, Basa said.

Adjustments to the scheme, designed to make it easier for business to access the loans, had not resulted in a significant increase in the rate of take-up of the available funds.

In the two weeks to August 15, an additional R136-million was extended to commercial and small and medium enterprises - an increase of one percent on the two weeks before. In a meeting with Finance Minister Tito Mboweni last week, banks explained that some owners were reluctant to incur more debt while uncertain business conditions and a weak economic outlook hampered their ability to generate sustainable income from which they could repay the loans.

As at August 15, participating banks had received 40 292 applications – up by only 615 over two weeks - for loans from the guarantee scheme. Of all the applications, 24 percent had been approved by banks and taken-up by businesses, while 39 percent were in the process of being assessed.

Nine percent were rejected because they did not meet the eligibility criteria for the loan as set out by the National Treasury and the South African Reserve Bank (SARB), and 25 percent were declined because they did not meet banks’ risk criteria. The average size of the loans under the scheme was R1.2-million, Basa said.

Banks were expected to be reasonably sure that businesses would be able to continue operating once normal economic activity returned, so that the loans could be businesses repaid and taxpayers’ funds were protected. 

The SARB and Treasury had agreed with the commercial banks to guarantee R67-billion loans under this scheme. The SARB and Treasury had announced that the scheme could be extended to guarantee up to R200-billion. However, demand for Covid-19 loans was expected to peak soon due to the prevailing business and economic conditions.

Separately from the loan guarantee scheme, since March 2020 banks had offered payment breaks worth a combined R32.83-billion to individuals and small, medium, and commercial businesses to help keep them afloat through the lockdown. Over 84 percent of individuals and 95 percent of businesses who requested help received assistance.

The R32.83-billion was the cumulative amount of the monthly instalments for assets and loans which had been deferred. The aggregate value of loans affected by the restructuring was R540-billion. 

This included R230-billion for home loans, R52-billion in business mortgages, and R47-billion in asset-based finance for companies. Cash flow relief for eligible individuals and businesses was critical to the preservation of quality of life, jobs, businesses, and a functioning economy. Banks were continuing to offer financial relief to their customers. The offering of each bank depended on their capacity and risk management policies. 

These payment breaks were not debt "write-offs" and interest and fees on credit agreements would continue to accumulate despite any necessary adjustment in terms. Some business were expected to opt for support from the loan guarantee scheme once their relief from commercial banks expired, Basa said.