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.
Keywords: Middle East and Africa, South Africa, Banking, COVID-19, Loan Guarantee, Credit Risk, FAQ, SRB
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous ArticleCFTC Approves Rules on Swap Clearing and Margin Requirements
The Prudential Regulation Authority (PRA) published the final policy statement PS21/21 on the leverage ratio framework in the UK. PS21/21, which sets out the final policy of both the Financial Policy Committee (FPC) and PRA
The Consumer Financial Protection Bureau (CFPB) proposed to amend Regulation B to implement changes to the Equal Credit Opportunity Act (ECOA) under Section 1071 of the Dodd-Frank Act.
The Prudential Regulation Authority (PRA) decided to maintain, at the 2019 levels, the buffer rates for the Other Systemically Important Institutions (O-SII) for another year, with no new rates to be set until December 2023.
The Financial Stability Board (FSB) published a progress report on implementation of its high-level recommendations for the regulation, supervision, and oversight of global stablecoin arrangements.
In a letter to the authorized deposit taking institutions, the Australian Prudential Regulation Authority (APRA) announced an increase in the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications.
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) are consulting on the preliminary guidance that clarifies that stablecoin arrangements should observe international standards for payment, clearing, and settlement systems.
The European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) have set out their respective work priorities for 2022.
The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0, in addition to the reporting module on leverage under the common reporting (COREP) framework.
The European Commission (EC) published the Implementing Decision 2021/1753 on the equivalence of supervisory and regulatory requirements of certain third countries and territories for the purposes of the treatment of exposures, in accordance with the Capital Requirements Regulation or CRR (575/2013).
EC published the Implementing Regulation 2021/1751, which lays down implementing technical standards on uniform formats and templates for notification of determination of the impracticability of including contractual recognition of write-down and conversion powers.