Are banks being honest about why support has failed?

There has been a huge focus on the number of government contracts for Covid-19 pandemic related tenders that have ended up being absurd get-richquick schemes. But the private sector hasn’t covered itself in glory either.

Speed, it turns out, is often a necessity but can be its own curse too. When the pandemic broke out, the government and the rest of civil society appreciated the need for speed.

But nothing illustrates how broken we are as a society more than trying to do something very difficult at speed. The Special Investigating Unit is now probing 658 Covid-19 personal protective equipment tenders and other pandemic related contracts worth R5.08-billion.

On the public sector side, speed it turns out has also been a problem for different but related reasons. When it came to keeping businesses going, the government roped in the banks and made them responsible for the largest single slice of the effort.

That seemed so sensible at the time. Effectively, government would be leveraging existing infrastructure to inject quick medicine into the economic system. Turns out, it didn’t work. But the question is why, and who is responsible.

As Ray Mahlaka reported in Business

Maverick this week, government’s Covid-19 loan guarantee scheme is still stuck on the runway. Recall, the loan system was supposed to inject R200-billion into the economy for businesses that were going to struggle to survive the lockdown’s dire economic consequences. It has been two months since the scheme underwent a makeover to improve its reach to struggling small businesses during the pandemic.

Since the changes to the scheme came into effect in August, additional loans worth less than R1-billion were distributed by the end of September, which brings the total value of loans approved and disbursed since the scheme’s introduction to R16.08-billion.

“In other words, about R180-billion could be sitting idle in the banking system when some businesses could use the loans to revive their operations under a level one lockdown economy,” Mahlaka reported.

Now the banks claim this is not their fault. MD of the Banking Association SA Bongiwe Kunene says there was a lot of uncertainty when the idea was mooted because banks had to determine how the loans would be treated. Speed, once again, was a challenge.

But beyond that, Kunene said business owners had been reluctant to incur more debt in the uncertain economic environment. This is no doubt true, but this uncertainty was precisely what the loan system was supposed to be addressing.

In response to the story, Business Maverick has had a lot of negative feedback from readers, who say what the banks have been saying is just bunk – the bigger problem is that they view the government-guaranteed loans a competition to their own much more expensive loan products.

Hence they have been soft-peddaling the loan process, hoping their clients would be so desperate, they will end up taking out much more expensive bank loans. One reader, Jan Badenhorst, the CEO of a training business, the Skills Academy, said as an applicant himself and someone who had helped others apply, the process was farcical.

Even though the loan was government-guaranteed, you had to sign a personal surety too. Just getting the documents was an effort. Of the nine banks that offered the loans, three didn’t mention it at all on their websites, he said. The reasons loans were turned down were not explained, and there was no real visible effort on the part of the banks to advertise or distribute the loans.

Badenhorst said every time a loan was refused, he was simultaneously offered a much more expensive ordinary loan. The key problem is that government-guaranteed loans have to be made at less than the repo, which is currently 3.5% and bank loans are priced generally at about 9.5%. Every time a bank grants a Covid loan, it effectively crosses off a potential customer from its list.

Obviously, banks have to be cautious loaning out money for which taxpayers might end up having to carry the can, and it’s easy to appreciate how difficult it must be.

But if banks claim people are cautious about taking out loans in the current economic environment, they need to explain why the Rupert family’s Business Partner’s Sukuma Relief Programme managed to disperse R1-billion over a weekend. DM168