Thanks for nothing, folks
A woeful 3.5% of the state’s R200bn loan scheme has been issued to desperate businesses. So what’s the hold-up?
ý It is two months since the introduction of a huge R200bn loan scheme to help small businesses through the Covid-19 pandemic, and its performance has — so far — been dismal.
It was hailed initially as a massive injection into the economy, but a meagre R7bn has found its way to SA businesses.
In fact, according to Banking Association SA (Basa) MD Bongiwe Kunene, only 4,800 small businesses have been successful, out of a chunky 29,700 applications.
Of those, 5,200 did not meet the eligibility of loans as set out by the ultimate guarantors, the Reserve Bank and the National Treasury, a further 5,400 fell outside the risk appetite of the banks and 14,100 are still being assessed.
The scheme focuses on businesses with turnover of less than R300m, in good standing with their banks with no available borrowing capacity and (probably the easiest to prove) negatively affected by the lockdown.
Basa was spurred into releasing the figures after research house Intellidex published a paper arguing that the scheme isn’t working. “Elsewhere in the world schemes have been calibrated on the run at a very rapid front-loaded pace,” says Intellidex chair Stuart Theobald.
But rapid turnarounds are alien to the local banking culture, which prides itself on complex risk assessment processes.
Intellidex says several SA banks admit their credit granting systems cannot be adapted to quick turnarounds.
This, then, is the nub of the problem and Intellidex believes the credit assessment procedure needs to be different.
After all, with loans available through the scheme with a 94% government guarantee, banks should be encouraged to lend at least as extensively as they did in 2007 in the days of easy loans before the global financial crisis.
Khaya Sithole, an accounting lecturer and analyst, says the information on each business should have been gathered in a central depository.
“Two banks may reach a different conclusion on offering funds to a particular business. Why should an SME be forced to deal with its own bank and no-one else?”
Sithole says the scheme should be open to non-banks, which have a much greater risk tolerance than banks.
Theobald agrees, pointing out that the Rupert family’s contribution to the relief effort, mainly through SME financing specialist Business Partners, was a model of efficiency and effectiveness.
“At the moment banks are asked to apply their normal credit risk processes, which means the guarantee is not, in fact, achieving its goal of improving bank risk appetite,” says Theobald.
Kunene says the aim is that customers are able to honour their Covid-19 loan commitments, which means the Treasury and the taxpayer will not incur any costs.
But Intellidex argues that if the scheme was fully rolled out, losses of about 20% would be realistic.
Theobald says it was introduced too late, seven weeks after the lockdown took effect, by which time companies had been forced to furlough or retrench staff.
Essentially, businesses had gone two months without any support.
Sithole cites the deep distrust between the government and the private sector as one of the reasons behind the delay.
Kunene argues that banks have already made a contribution to their small businesses through R11.7bn of assistance, such as interest holidays, but the figure will also include grants provided by the Oppenheimer family as banks administered these too.
In total, payments on loans worth a cool R495bn have been suspended in both the personal and commercial sector.
Despite banks’ ingrained risk aversion, Theobald, a former news editor of the FM, says they are the only institutions that can really move at speed and deliver high volumes of loans into the business sector.
“The regulators should specify the credit assessment processes that can be followed, especially if the government is standing behind the schemes. In the UK Bounce Back scheme, banks can get money into accounts within 24 hours of the application. That’s because conditions are clearly set down.”
But Stanlib chief economist Kevin Lings says: “SA is still learning what works, as there was little need for emergency assistance during the 2008 global financial crisis.”
Karl Kumbier, CEO of Mercantile Bank, which specialises in small business, says a scheme had to be set up urgently as enterprises were unable to trade during lockdown, but still had to pay salaries and suppliers.
The fund, which pays salaries and other overheads for three months with a six-month interest rate holiday, was set up after just 10 days of talks between the major banks, the Reserve Bank and the Treasury, when they finally took place.
Basa says that during declining economic conditions, when credit is in most demand, it is unfortunately tightened.
Small businesses find it harder to borrow on commercial terms, which is why the fund should have been a vital and speedy intervention.
The obligation to pay back loans is unchanged. It is simply deferred. But it was expected that it would allow banks to increase their clients’ credit scores, as banks are taking at most 6% of the loss on the scheme-backed loans and the Bank the rest — underwritten by the taxpayer via the Treasury,
Theobald argues that the six-month interestfree period is too short, especially as other support measures, for example from the Unemployment Insurance Fund, will run out at about the same time.
“We have to take a realistic view on when
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business cash flows will have resumed sufficiently to resume servicing debt.”
He also believes it is a mistake that banks insist on personal surety from business owners before granting loans.
“Business owners cannot control lockdown policies, but the government can.”
Intellidex argues that setting the loans at the prime interest rate is far from generous when businesses are so squeezed, and with social distancing will not be able to resume their prepandemic turnover.
It is also critical of the inflexibility of the loans: they are payable over three months to cover overheads, but hairdressers and restau
HANGING ON TO ME CASH
(Reits) are either cutting or postponing dividends in order to shore up balance sheets.
Stor-age’s inflation-beating dividend growth comes on the back of still solid rental growth of 6% and 5% respectively recorded by the SA and UK portfolios.
Analysts believe there’s still value to be had despite Stor-age trading at what appears to be a rather demanding dividend yield of about 8.3% compared with at least two-thirds of the JSE’S 50-odd property counters, which are offering yields of 13%-30%.
Kelly Ward, investment analyst at Metope Investment Managers, says the declaration of a final dividend despite the current constrained economic climate is encouraging.
Though management hasn’t given any guidance in terms of the dividend growth outlook for the 2021 financial year, Ward expects the company to continue to generate strong income from its portfolio. “This is important for incomeseeking investors, given that several other SA listed property companies — and indeed companies in many other sectors too — are looking to introduce lower payout ratios and retain income in order to weather the storm,” she says.
Keillen Ndlovu, head of listed property funds at Stanlib, shares a similar view. He says that while the rate of rental growth in Stor-age’s portfolio may slow over the next year, the company is still better positioned than most other Reits to withstand a recession and the economic fall-out that is likely to be caused by Covid-19.
Ndlovu says a key attraction is Stor-age’s relatively low loan-to-value of 30% versus the sector average of close to 40%.
He also likes the company’s high UK exposure. He refers to the UK government’s provision of many incentives to keep smaller businesses and individual households afloat. Ndlovu adds: “We like it that Stor-age has a strong, passionate and driven management team with vested interests in the business.”
IT PAYS TO HOARD