‘They wouldn’t budge’: Mboweni blames banks for failed loan guarantee scheme

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Former finance minister Tito Mboweni said banks refused to play ball to make the Covid-19 loan guarantee scheme a success.

Photo: Gallo Images/Ziyaad Douglas.

  • Tito Mboweni said SA banks refused to play ball to make the Covid-19 loan guarantee scheme a success.
  • There was no reason for banks to be reluctant to lend money under the scheme because the government had agreed to take on most of the risk if companies failed to repay, he said.
  • Banks, on the other hand, have previously said the SA Reserve Bank wants them to continue their usual risk assessments on such loans.

Former finance minister Tito Mboweni says it was South African banks that killed the government’s Covid-19 loan guarantee scheme. According to Mboweni, they were unwilling to “play ball”, and even a personal plea from President Cyril Ramaphosa could not convince them.

Speaking at PSG’s annual conference in Sun City on Wednesday, Mboweni said there was no reason for banks to be reluctant to lend money under the scheme as the government had agreed to take most of the risk if the companies didn’t repay.

“This national guarantee scheme was designed in such a way that 94% of the risk was to be absorbed by the National Treasury and the South African Reserve Bank [SARB]. But the banks didn’t come to the party,” Mboweni said.

The former finance minister said he was “disappointed” with how the sector did not extend as much credit as businesses were asking for, especially small and medium-sized businesses.

Shortly before the program ended in mid-2021, only R18.4 billion – out of a potential R200 billion – had been dispersed. In their defence, the banks have always claimed that they followed the instructions of the SARB, which told them not to lend irresponsibly.

READ | Banks only approved 27% of Covid-19 loan program applications

Mboweni said President Cyril Ramaphosa tried to intervene when it became clear banks were not lending the promised 200 billion rand at the rate the government expected.

“We had several meetings with them, and they didn’t move.” When Ramaphosa joined one of these meetings, “they basically told him they weren’t going to do it,” Mboweni said.

He said that’s why when big companies talk about a social pact, he doesn’t take it seriously.

The National Treasury has launched a new program – the Bounce Back Scheme – and commentators are hoping banks will be more eager to lend this time around. Indeed, the national treasury will assume 20.5% of the initial losses in the new regime.

READ | EXPLANATOR | What you need to know about the government’s new ‘bounce back’ loans for businesses

Under the old loan guarantee system, although 94% of losses were guaranteed by the state, banks had to bear 6% of initial losses. To try to reduce their exposure to possible initial losses, banks have asked for guarantees in many cases. But many business owners – unsure how long the closures would last and whether they would have any businesses at the end – were unwilling to bet their properties on it.

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