The group said that the structure of the guarantee fails at increasing credit appetite for banks, as government gives an effective 94% guarantee, but requires banks to use their established credit risk assessment processes.
If government audits a defaulted loan and finds this process was not followed, it could refuse to pay the guarantee. This has a the net result of invalidating any drive to increase credit appetite.
“Put very simply – the point here is that there is greater credit risk in the system which needs to be lent into – if that isn’t happening, then incentives are not right,” Intellidex said.
Intellidex chairman, Dr Stuart Theobald, said that the consequences of this failure to get these funds into the hands of businesses could be dire for the economy.
The group’s baseline GDP outlook for South Africa in 2020 shows a contraction of 10.4%. However, this is under the assumption that the full R500 billion stimulus package is delivered and used.
“Without (the R500 billion), the decline would be 16.4%,” Theobald said, noting that the R200 billion loan scheme, while 40% of the package, represents 5.1 percentage points of the 6 percentage point value of the stimulus.
If the loan scheme fails, economy growth would still be -15.5%.
“This is clearly a far worse economic outcome and is precisely what the R500 billion package was intended to avoid,” he said.
To fix this, Intellidex says that the loan scheme needs to be opened up and made to be less restrictive, and more flexible in how its is delivered.
It said that the restrictions on what can be done with the funds needs to be loosened – allowing companies to pay dividends, or invest in their future operations.
“If a restaurant or hair salon wants to use the lockdown period to remodel, let them – it will create employment. If a retailer wants to use the money to build a website to enable e-commerce, this should be encouraged, not restricted,” it said.
Other changes include making the full loan available, instead of paying it out over three months; extending the lending term and lowering the cost – or even fixing the rate; adjusting the size restriction for companies; and giving certainty lenders by proving a vetting process to follow, and giving an explicit budget for the scheme.
“The bank guarantee scheme can and must form a critical component of the government’s response to the crisis. It has the potential to provide five percentage points of GDP growth to the economy at this crucial time,” Theobald said.
“It can rescue companies and jobs while driving economic behaviour. We urge all relevant parties to work together in a collaborative and innovative spirit in the public interest.”