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As a result of the ongoing economic crisis caused by the coronavirus pandemic and the prolonged lockdown, banks in South Africa have arranged to provide financial assistance and loan guarantees to help individuals and companies that are facing financial difficulties.
On their own initiative, South African banks have extended an important financial relief. R12.96-billion to commercial businesses and R19.34-billion to individuals.
In other aspects, banks have also extended R13.26-billion in loans under the program Covid-19 Loan Guarantee Scheme, Issued by the National Treasury, South African Reserve Bank, and Banking Association of South Africa.
Companies that could count on this benefit could use the money they receive for operational expenses, such as salaries, rent and lease agreements, and contracts with suppliers.
Lungisa Fuzile, Chief Executive Officer & Executive Director at The Standard Bank of South Africa, stated “The loan proceeds will be used for immediate relief and ongoing support for eligible Small and Medium Enterprises (“SMEs”) and corporates in South Africa that have been affected by Covid-19 by assisting them with the purchase and production of goods and services needed to cope with the crisis and towards stimulating long-term investments in affected industries.”
“We take our responsibility as a corporate citizen seriously and value the ongoing collaboration with IFC. This transaction reflects Standard Bank’s commitment to supporting our clients through this pandemic.”
The aid aims to support the companies and most affected people by the current economic crisis, providing them with financial support so that they can have the money to purchase and produce the materials necessary to overcome the crisis.
Since the beginning of the spread of the coronavirus, in March of this year, numerous South African that started to feel the distress of the economic crisis have asked for financial aid. More than 84% of individuals, as well as 95% of companies, received assistance after having asked for it.
“The combined value of the actual assets is R537-billion. This includes R229.27-billion for home loans, R52.06-billion in business mortgages, and R47.52-billion in asset-based finance for companies. Cash flow relief for eligible individuals and businesses is critical to the preservation of quality of life, jobs, businesses, and a functioning economy. Deep cuts in interest rates by the SARB is providing further relief to individuals and businesses.”
It is important to understand that a payment relief does not mean a debt cancellation. That is to say that the interests and commissions of any credit agreement will continue to pile up.
The Banking Association of South Africa (BASA) said “The primary guiding principle of commercial banks is the protection of depositor’s funds. Banks are not able to write off credit they have extended, because they hold in trust the savings and salaries of South African workers, professionals, and companies.
These deposits are used to extend credit for investment in productive economic infrastructure and personal loans. Depositors trust that they are able to withdraw their money on demand, with agreed-upon interest.”
The initial period of relief that helped many businesses at the beginning of the national lockdown has expired from the end of June 2020. The position of banks about extending new assistance to their clients depends on their scope and risk management policies.
The major feature of the initial phase of the Loan Guarantee Scheme was to assist small and medium companies with an annual turnover of less than R300-million.
This second phase of the loan assistance provides COVID-19 Term Loans of up to R100-million to all eligible companies, regardless of turnover.
“The initial take-up of the scheme has been slower than anticipated and, since August 1, the terms and conditions have been revised to make it easier for small businesses to access the loans meant to cover operating expenses, like salaries and rent.”
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