Q&A

Two months after the launch of the government’s R200bn Covid-19 loan guarantee scheme, banks have paid out only R7bn. Chris Barron asked MARK BRITS, senior GM of the Banking Association … Why is the scheme so unfit for purpose?

I don’t think it is unfit for purpose. Why have there been so few loan approvals?

The first phase of the scheme requires the banks to use standard lending practices … Normal credit risk assessment in an entirely abnormal situation?

Ultimately we’ve still got to apply credit because it’s not a grant system. The money still has to be repaid with interest in the normal course of business. Aren’t the loans 94% government guaranteed?

The intent behind the loan guarantee scheme is to help the banks lend to those companies they wouldn’t normally lend to because of the credit risk attached. It’s not about giving money away. Aren’t these businesses already in good standing with their banks?

That is correct. So why the stringent process?

It’s the way banks assess credit. The customer needs to get, for example, audited financial statements from their bookkeepers. Those organisations were still in lockdown. Surely the point was to help those staring into the abyss precisely because of the lockdown?

Absolutely. But we were responding quickly to a need. We had a few weeks to get it together. And the implications of the decisions that were taken can only manifest once we go through the actual process. The focus was on getting the scheme up and going. Why did it take so long?

I don’t think you could have got it up any sooner. It does take a bit of time … Seven weeks after lockdown?

It is a long time but there’s a process you have to follow irrespective of the urgency. Why have so few approvals been granted?

The process requires these checks and balances. We’re hoping that in the second round of the scheme that process will be relaxed. It still has to be good-quality credit and still has to go through our internal processes; we’ll just be able to innovate around the urgency and the type of documents required in order for us to expedite it more appropriately. Why so many restrictions on what small businesses can do with the money?

That’s the agreement with the Reserve Bank and the Treasury. Shouldn’t they be able to use it as they see fit?

The intention is to save jobs and prevent businesses from collapsing. Surely the owners are best placed to judge how?

Yes, but the Treasury is in the best position to determine how they want the money to be used. Aren’t we forgetting that these are not grants but repayable loans?

In the second round, businesses reopening will allow for greater flexibility and I think that is perhaps where we need to get to. Why the demand for personal surety?

Personal surety is a function of the credit process. But we’ve discussed this with the National Treasury and Reserve Bank and there is clearly no intention for us to be constrained by that requirement, and we are attending to that.