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
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