Trade and Industry Minister Ebrahim Patel has signed new regulations that will allow commercial banks to help financially distressed customers in a co-ordinated manner as the impact of the coronavirus outbreak in SA is expected to have a devastating impact on an already fragile economy.

By Tuesday 24 March 2020, at the earliest, or later in the week, the new regulations are expected to be gazetted, paving the way for commercial banks to, among other things, share information about the best ways to restructure soured loans or share resources about protecting banking services in SA. The banks will be able to do so without fears that they are breaching competition laws or gaining a competitive advantage over each other.

Since President Cyril Ramaphosa declared the National State of Disaster on 15 March over the Covid-19 outbreak, commercial banks have been in talks with Patel, asking him for an exemption from certain provisions of the Competition Act.

Before Patel signed the new regulations, the Competition Act prohibited banks from collaborating or sharing information because it would be viewed by the Competition Commission as collusion and engaging in anti-competitive behaviour. 

Cas Coovadia, the MD of Banking Association SA (Basa), said Competition Commission Commissioner Thembinkosi Bonakele and Patel have agreed with the request by commercial banks for an exemption under the act.

“I have been told by the minister’s office that the Gazette that they need to proclaim has gone to the government printers today [Monday 23 March]. I would assume that in the next day or so, we would have a Gazette that would give us the wherewithal to come together and share information,” Coovadia said.

The trade and industry department didn’t respond to Business Maverick’s request for comment, but an official said Patel had signed the exemption requested by banks.

Coovadia said after the new regulations have been gazetted, banks will be able to meet “and cooperate to offer the best solutions to all the relevant customers”.

“This is because some customers might have some accounts with more than one bank and banks can now cooperate to share information, infrastructure, and the payment system. This will enable the banks to have a more coordinated and strategic approach to this matter [assisting customers during the Covid-19 outbreak].”

Consumer relief measures by banks

Bank executives met with President Cyril Ramaphosa, the National Treasury and SA Reserve Bank at the weekend about measures that can be implemented by the private sector to cushion the impact of Covid-19 on the economy. At the meeting, executives assured Ramaphosa that commercial banks are adequately capitalised and the financial banking system is sound enough to withstand economic shocks

There are fears that clients of banks (individuals, small and large businesses) will default on their loans because various sectors of the economy are scaling down their operations as a precautionary measure to contain the spread of the coronavirus.

The public and private sectors have proposed several initiatives to assist businesses and households. The 100 basis point interest rate cut by the SA Reserve Bank (SARB) and its range of measures to curb extreme volatility in bond markets and money markets last week was the first. The second was commercial banks – mainly Standard Bank, Nedbank and FNB –  announcing (individually and not jointly) various measures to ease the effects of the coronavirus outbreak.

Standard Bank has temporarily halted loan payments for students and small businesses for three months (from 1 April to 30 June). Small businesses in good standing and with an annual turnover of less than R20-million, and full-time students will be eligible for the payment holiday.  

FNB said it continues to work with Basa and the SARB on a variety of measures to support consumers and businesses, which will be announced “in the days ahead”. Meanwhile, Nedbank said it would support clients in good standing with “suitable individual solutions to cash flow challenges they may experience as a result of Covid-19”. 

These solutions could include extending existing loan periods, deferring payments on loan agreements with Nedbank, or extending additional credit to manage short-term cash flow shortfalls.

Although these measures give consumers some relief in the short term, they arguably kick outstanding debt payments and associated accrued interests down the road. At the end of the holiday payment period, consumers might have to settle higher payments than if they had continued with monthly payments.  

Mike Brown, the CEO of Nedbank, defended the practice, saying this is how payment holidays are dealt with around the world by banks.

“What banks are designed to do is that if people have temporary cash flow shortages as a consequence of some event, banks can help finance customers through those cash flow shortages. If there needs to be any permanent payment of monies (such as debt write-offs), that is done by governments around the world and not banks,” he told Business Maverick.

Banks have been criticised for not going far enough as in the UK, where business loan forbearance schemes and government-funded mortgage holidays have been put in place, resulting in banks sacrificing higher profits. Basa’s Coovadia said such far-reaching measures haven’t been discussed at meetings between the government and the private sector as the first prize was pushing for Competition Act exemptions.

Iraj Abedian, CEO of Pan-African Investment and Research, said if the Reserve Bank, which regulates the banking industry through the Prudential Authority, cut interest rates by 200 basis points and was on standby every month for further cuts if they are needed, it would have given commercial banks the space to be more aggressive.

“The rest of the banking industry takes its cues from the Reserve Bank because they charge their interest rates based on the central bank’s interest rate decision. If the Reserve Bank cuts the cost of capital, banks would have a lot more space to pass relief measures to their clients,” said Abedian.

He said relief measures currently offered by commercial banks are focused on the long term.

“They [banks] presume that the coronavirus will be a three-month affair.  That is not the case. If you expeditiously manage the coronavirus outbreak, you can bring infections under control in three months. But the economic impact is not a three-month exercise. Therefore, the banks need to recognise that if they want to have an effective package of interventions, they need to think six to 12 months down the line.” BM