Covid-19 loan guarantee scheme extended by 3 months

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  • The Covid-19 loan guarantee will be extended by another three months, allowing drawdowns to continue until 11 July 2021.
  • There has been a limited uptake of loans, this as businesses have been reluctant to take on more liabilities amid uncertainty of the economic impact of the pandemic.
  • As at 27 March 2021, about 18% of loans had been approved; however, banks have been providing other forms of support to distressed clients and corporate customers.

The Covid-19 loan guarantee scheme will be extended by three months.

The scheme was launched as part of government's R500 billion stimulus package to support the economy given the impact of the Covid-19 pandemic. The scheme is based on a partnership between National Treasury, the SA Reserve Bank (SARB) and the Banking Association of South Africa (BASA). It is meant, specifically, to support struggling businesses.

The period for which businesses could draw down loans was to end on 11 April 2021, for most participating banks, read a statement jointly issued by the parties on Monday.

"After further consultation, the National Treasury, the [SARB] and the BASA have agreed to extend the deadline by three months to 11 July 2021, and in the process to harmonise this deadline for all participating banks.

"The guarantee scheme will continue to service all loans advanced up to the extended date, for up to five years. The further extension of three months will enable an orderly winding down of the scheme and allow those businesses who have applications already lodged to be assessed," the statement read.

Banks had approved about 18% or R18 billion out of the R100 billion guarantee, as at 27 March. Banks had received more than 1 700 loan applications and approved less than half (511). Only 97 loans were taken up by clients.

The scheme has been criticised for its stringent conditions, which has led to a poor take-up. However, SARB governor Lesetja Kganyago said that similar schemes had been implemented worldwide and SA's scheme was performing well by comparison.

He also attributed the lack of draw downs to the fact that there was subdued demand in the market due to heightened lockdown restrictions.

The statement noted that the scheme was not "as effective" as envisaged. Many distressed companies have been reluctant to take on more liabilities, given the uncertainty of the Covid-19 pandemic and its economic impact, the statement read.

Banks, however, had provided "significantly more support" to small businesses, separate to the scheme. They have provided at least R33 billion in payment relief between April and November 2020. "Such support reduced demand for the loan guarantee scheme," the statement read.

Additionally, banks restructured loans and credit facilities "worth billions more" for clients and corporate customers in financial distress.

The Financial Sector Conduct Authority also provided support to businesses and individuals by adjusting regulations for insurance premium relief. "In addition, the FSCA advised the boards of trustees for retirement funds and financially distressed employers to consider allowing appropriate relief with regard to retirement contributions," the statement read.

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