Banking sector ‘can’t afford not to act’
• Industry must co-ordinate a package to restore the country’s supply chain
The banking sector is in continuing discussions with regulatory authorities about the industry’s response to the spread of the coronavirus, Banking Association SA
MD Cas Coovadia said on Tuesday.
The banking sector is in continuing discussions with regulatory authorities about the industry’s response to the spread of the coronavirus, the MD of Banking Association SA, Cas Coovadia, said on Tuesday.
The industry will also be talking to the competition authorities, to allow the large banks to discuss matters jointly, which they are ordinarily prevented from doing under competition law, said Coovadia.
As the economic ramifications of the virus’s spread have begun to set in, the government has proposed that part of economic support efforts include measures from commercial banks that would ensure credit lines and working capital arrangements are kept open for businesses and households.
But more aggressive efforts by the financial services sector are being urged by Iraj Abedian, CEO of pan-African Investment and Research. The Reserve Bank — which regulates the banking industry through the Prudential Authority — and the largest banks need to set up a “war room” to co-ordinate a stimulus package, aimed at restoring SA’s supply chain, he said.
The SA government does not have the fiscal space to carry out large fiscal stimulus, Abedian said. And monetary policy or a deep cut to interest rates by the Bank, though they have a part to play, cannot “be the beginning and the end of the intervention”.
The central bank and the large financial institutions need a co-ordinated response that would result in the banks “immediately passing on” interest rate cuts by the Bank to their customers — particularly small and medium-sized enterprises (SMEs) and businesses that are in the front line of the battle against the virus, said Abedian.
These would include firms in the tourism, travel and logistics sectors. These efforts should include reducing the cost of credit to businesses, especially SMEs, and longer repayment terms as well as repayment holidays, he said.
Some local firms are seeing more demand for their goods as a result of the crisis — such as makers of hygiene products — but do not have the capital to expand their operations.
Banks should proactively offer them credit on more favourable terms, Abedian said.
These offerings need to also be transparent and available to everyone, rather than just “those in the know”, he said.
A continued, co-ordinated, systematic response to the supply-side shock caused by the coronavirus outbreak is “the only way we will be able to avoid a deep recession”.
Coovadia said that the banking industry is “fully cognisant of the fact that the country is in crisis mode”.
“We can’t afford not to act, and do so urgently, and the industry will take the necessary measures to minimise the effects on staff, customers and others generally,” he said.
The banking industry is also working through platforms such as Nedlac to assist with responses, he pointed out.