The response from the banking industry thus far to the Covid-19 pandemic and lockdown in South Africa has been, in a word, underwhelming.
The damage being caused by a wholly unprecedented nationwide lockdown and the health emergency that will play out over the coming weeks and months will ripple through the economy at every level. Some ‘best-case’ estimates see the economy shrinking by 5% this year.
Other more realistic estimates that factor in a longer lockdown, such as a detailed research paper by Intellidex’s Peter Attard Montalto, model a contraction of as much as 18.2% (with a starting point of 6.8%).
Because of the timing of the lockdown, the majority of businesses made payday in March, and many likely paid rent and other suppliers.
Even in the most optimistic scenario where the lockdown is not extended beyond April 17, few businesses are going to be in a position to make those same payments at the end of next month.
Large corporates – those with solid balance sheets, at least – will weather the storm. Medium-sized businesses that aren’t in the essential-services value chains will suffer, and many small businesses will likely be decimated.
So far, the banks have mostly responded on operational matters with commitments to ensure that essential banking services (call centres, ATMs, point of sale devices, and necessary branches) remain open during the lockdown.
Over a week ago, Standard Bank took the lead by offering a three-month payment holiday to small- and medium-sized business customers in good standing, as well as full-time students.
It extended this to lower-income earners on Sunday.
Nedbank let its customers know that the minimum repayment amount on all credit card products has been reduced (halved) to 2.5% for the next three months.
There was an immediate expectation that other banks would follow, but at first the industry appealed for temporary exemption from collusion legislation to enable them to react in a co-ordinated manner.
This was approved by the minister of trade and industry. And so far banks have waived Saswitch fees for drawing cash from another bank’s ATM.
So much for a big bang.
No other bank has announced payment holidays to the extent of Standard Bank and no other bank has announced similar credit card measures to Nedbank.
One can appreciate the confusion and resentment being built among business owners, employees, consumers and students. ‘Why is one bank offering XYZ, when my bank isn’t?’
After a week, the Banking Association of South Africa would only say that: “Banks are investigating ways to assist customers on an industry and collaborative basis wherever possible.”
The longer the uncertainty around support swirls, the more damage will be done to the economy.
It need not be this way.
In the UK, Chancellor of the Exchequer Rishi Sunak announced extraordinary measures a week ago. Every employer in that country is eligible for its new Coronavirus Job Retention Scheme, which will cover 80% of the salary of workers (up to certain limits) who would otherwise be laid off. There is no limit on the funding available for this scheme. On Friday, it extended this to cover self-employed workers too. These extraordinary measures, the UK government believes, will keep the economy from collapsing.
Limited war chest
SA, however, simply does not have the money to do something even remotely similar. That National Treasury could find only R100 million in seed funding for the Solidarity Response Fund (set up outside of government) is terrifying. And government support via the Department of Small Business Development’s SMME (small, medium and micro-sized enterprises) relief finance scheme will be limited.
There will likely be untold pressure on revenue collection this year so there’s not an awful lot of room for meaningful tax relief beyond what has already been announced (deferment of 20% of PAYE liabilities over the next four months will hardly make an impact).
Of course, our banks are in a very tough situation. They cannot do this alone.
These circumstances necessitate a co-ordinated approach between all banks, the South African Reserve Bank (and Prudential Authority), the South African Revenue Service (Sars), Treasury and government.
The only way out for SA is for Treasury and the reserve bank to offer substantial guarantees to the banks in order for them to provide loans and working capital to aid SMMEs and large businesses.
These banks, in theory, know their customers very well and will be able to offer such assistance to a level beyond what government’s central approach would. There will unquestionably be adjustments to minimum repayment amounts (such as Nedbank’s) across the board and there are other creative interventions such as interest holidays for the next few months which could make a big difference.
At stake is not just permanent damage to the economy, but as many as two million jobs. With strong interventions, such as these above, this could be kept at under one million. In the same way that government is seeking to flatten the curve on infections, it needs to get ahead of the economic fallout.
Times like these call for decisive action. Everyone – employers, business owners, consumers – needs as much certainty as possible right now. Over to you, Treasury, the Reserve Bank, and the banks (and surely you should withhold those recently declared dividends too?).