SARB Announces Activation of Loan Guarantee Scheme Amid COVID Crisis
SARB announced that the COVID-19 loan guarantee scheme announced by President Cyril Ramaphosa in April will operate from May 12, 2020. The initial set of participating banks—which includes Absa, First National Bank, Investec, Mercantile Bank, Nedbank, and Standard Bank—are ready to accept loan applications from eligible businesses which bank with them. The activation of the loan guarantee scheme follows the finalization of legal details by National Treasury, SARB, and the Banking Association South Africa. SARB is the administrator of the scheme. SARB also published a set of frequently asked questions (FAQs) about the loan guarantee scheme.
All commercial banks can access the guarantee scheme, though SARB reserves the right to limit the amount that can be accessed by an individual bank. The loan guarantee scheme is an initiative to provide loans, guaranteed by government, to eligible businesses with an annual turnover of less than ZAR 300 million to meet some of their operational expenses. Funds borrowed through this scheme can be used for operational expenses such as salaries, rent and lease agreements, and contracts with suppliers. Government and commercial banks will be sharing the risks of these loans. Initially, the National Treasury has provided a guarantee of ZAR 100 billion to this scheme, with the option to increase the guarantee to ZAR 200 billion if necessary and if the scheme is deemed successful. SARB takes no financial risk in the scheme as its loans to banks are guaranteed by the National Treasury. Losses will be allocated as follows:
- The net margin on the loan portfolio (approximately 2 percentage points) is pooled as the first loss buffer.
- The 0.5 percentage point credit premium charged by the National Treasury is the second loss buffer.
- Banks will take the third loss, up to 6 percentage points of the amount loaned by that particular bank in terms of the scheme.
- After that, losses will be borne by the National Treasury.
As an administrator of the scheme, SARB will provide the finances for these loans to banks and will keep a record of the amounts owing by each bank as well as default rates. SARB will publish an annual report setting out how much each bank has used from the scheme and the performance (default rate) the COVID-19 loan portfolio of each bank.
Related Links
Keywords: Middle East and Africa, South Africa, Banking, COVID-19, Loan Guarantee, Credit Risk, FAQ, SRB
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
