Governor sticks up for banks
Kganyago ‘puts facts’ in wake of president’s slating of Covid credit
● Reserve Bank governor Lesetja Kganyago firmly declined on Friday to respond to President Cyril Ramaphosa’s attack on the banks for failing to lend to businesses under the government-backed loan guarantee scheme — but then went on to “put the full facts”, arguing that by international standards SA’s banks hadn’t done badly and they had continued to pump credit into the economy despite Covid-related constraints on demand.
The governor was speaking a day after the Bank kept interest rates on hold at their lowest level in more than five decades, in contrast to Brazil, Turkey and Russia, which hiked interest rates in recent weeks after US bond yields surged, making it harder for emerging-market economies to compete for capital flows.
Bloomberg reported that Ramaphosa told government officials on Thursday that “we put up R200bn and said assist the private sector, to allow them to protect jobs so that companies are able to operate through Covid”, but the response from the banks had been “greatly disappointing”.
The president also took a swipe at the banks for making “huge, billions and billions” of profit and not investing enough in job-creating assets.
Banks have so far lent R18.5bn to businesses affected by Covid under the scheme, which was launched in June last year as part of the R500bn Covid relief package Ramaphosa promised in April.
But economists estimate hardly more than R180bn of the president’s package has actually materialised.
And by the time the guarantee scheme was launched more than six weeks into the lockdown, banks had already voluntarily granted extensive relief to customers who were taking financial strain.
Profits at SA’s big banks plummeted 48% last year on the hit they took from Covid-related bad debts and revenue losses, PwC reported in an analysis last week of banks’ financial results.
“Governors do not respond to presidents. Governors stay in their lane,” Kganyago said in answer to questions at a virtual event hosted by the UK-SA Chamber of Commerce on Friday.
He said, however, that the guarantee put
in place for the loan scheme through the Bank was only R100bn, not R200bn, and banks did not depend on the scheme in order to provide support to their customers or to extend credit.
In real terms, the banks had grown credit over the past year, the governor said.
But the demand for the loan guarantee facility was always going to be constrained as long as there was uncertainty about what was happening with the evolution of the virus and thus what was going to be happening with the lockdown restrictions, Kganyago said.
“And we must be clear the facility does not say there is money in the Reserve Bank vaults which the banks must come and fetch — they have to generate the loans and take
the first loss of 6%.”
Kganyago also pointed to International Monetary Fund figures that indicated last year that the take-up of similar schemes in countries such as Germany and Spain ranged from 3% to 20% — so SA’s utilisation at 18%19% was “not a bad performance at all” in an international context.
The Banking Association SA (Basa) also responded on Friday, saying SA’s banks had provided their customers with an estimated R33bn of voluntary Covid financial relief in the six months to November, which greatly outweighed loans extended under the loan guarantee scheme and consequently reduced demand for it.
“Demand for the scheme was significantly below the original expectations because
business owners remain reluctant to incur more debt, due to the challenges presented by inconsistent policy and regulation, uncertain business conditions — including loadshedding — and a weak economic outlook, ” Basa said.
As implementing partners in the loan guarantee scheme, which is due to expire next month, the banks had also been responsible for ensuring taxpayers’ funds were not exposed to undue risk of the loans not being repaid, the association said.
Friday’s panel came after the Bank’s fivemember monetary policy committee (MPC) on Thursday decided unanimously to hold the benchmark repo rate at 3.5%, with the
The facility does not say there is money in the Bank vaults which the banks must come and fetch Lesetja Kganyago
Reserve Bank governor
two more dovish members who’d favoured a rate cut at the previous two meetings coming in line with their colleagues.
However, the committee made it clear it is still comfortable with its “accommodative” stance, even though its model indicates two rate hikes later this year, in the second and fourth quarters.
“Fortunately, the MPC does not outsource its responsibility to the model. We make our own judgment and we felt that the appropriate stance was to keep rates unchanged,” Kganyago told Friday’s audience.
The accommodative stance is reflected in the fact that the repo is now negative in real, inflation-adjusted terms on a forward-looking view, with the Bank forecasting that inflation will rise to 4.3% this year, 4.4% in 2022 and 4.5% in 2023, from an average 3.3% last year.
Latest figures from Stats SA showed inflation fell to a better-than-expected 2.9% in February, thanks to limited increases in medical aid fees and food.
This is not expected to last, with higher oil and electricity prices expected to drive inflation up in coming months.
But a weak economic recovery will mute price pressure, and though the Bank has lifted its growth forecast for this year to 3.8%, up from 3.6%, and 2.4% in 2022, Kganyago expressed concerns about further waves of Covid infection and the possibility of further restrictions.
Deutsche Bank economist Danelee Masia said the MPC was surprisingly dovish: “There is nothing in this statement that seems to suggest that the [Bank] is about to hike rates soon … Monetary policy remains accommodative, keeping financial conditions supportive of credit demand as the economy recovers from the pandemic and associated lockdowns.”
“Tolerance for negative real rates is a function of how much slack the MPC perceives to be in the economy.”
Capital Economics said: “The slight upward revision of the Bank’s 2021 growth forecast probably masks the fragile nature of SA’s recovery.
“The Bank appears to be in no rush to follow other emerging-market central banks and tighten policy.”
We put up R200bn and said assist the private sector, to allow them to protect jobs so that companies are able to operate through Covid
President Cyril Ramaphosa