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Published on 7/04/2020 6:07:54 PM | Source: Reuters

Exclusive: South Africa weighs `funding for lending`type scheme for banks amid virus

Posted in Top Stories| #World Market #South Africa #COVID-19

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JOHANNESBURG - South Africa's National Treasury is considering the creation of a scheme to encourage bank lending to small businesses and consumers as one response to the coronavirus outbreak, central bank deputy governor Kuben Naidoo told Reuters on Tuesday.

Naidoo, also head of the Prudential Authority, said one option was a type of "funding for lending" scheme. Such programmes try to incentivise bank lending, such as that introduced in 2012 in the United Kingdom following the 2008 financial crisis

"We're not the primary drivers, but I know the treasury is considering these issues," Naidoo said by phone. "The central bank would be involved, our law doesn't allow us to lend unsecured, but as part of a broader design of a scheme we're prepared to be involved."

South Africa's treasury said in a statement it was exploring all funding avenues to finance cornavirus-related programmes and measures aimed at addressing the pandemic.

"The funding avenues will not be limited locally, but will include exploring all global partners," it said, adding funding transactions will be announced once concluded. It declined to comment further.

Africa's most industrialised economy, which already slipped into recession in the final quarter of last year, has largely shuddered to a halt amid a three-week lockdown to prevent the spread of the coronavirus. Only essential services like grocery stores are permitted to operate.

 

OVERSEAS CAPITAL

South Africa's problems are exacerbated because much of the overseas capital emerging markets normally have access to often doesn't stick around when disaster strikes. The Institute of International Finance said a record $83.3 billion fled from emerging stocks and bonds in March.

With many South African small businesses and consumers already struggling, the impact of the shutdown threatens to tip many over the edge. The central bank has already implemented a number of other relief measures for banks to keep bank credit flowing.

On Monday it recommended banks do not pay dividends or bonuses for 2020, prompting a more than 4% fall in the Johannesburg Stock Exchange's banking index at Tuesday's market open.

At 1146 GMT on Tuesday the banking index was up over 10%

Naidoo said that in South Africa companies that had already announced dividends, as some banks did at their full-year results in March, had a legal obligation to pay, and the SARB expected where this was the case dividends would be distributed.

Britain's funding for lending scheme allowed banks to exchange assets they already had, such as loans, for treasury bills from the Bank of England, but Naidoo said there were various examples from around the world whereby banks were encouraged to lend and governments in turn agreed to pick up some part of losses incurred.

The UK's scheme also worked to enable banks to borrow money at cheaper rates, in hope they would pass this on to businesses and consumers.

 

(Reporting by Emma Rumney; Editing by Promit Mukherjee and David Holmes)