Absa Bank’s head of business banking in North West Kgalaletso Tlhoaele has asked the Black Business Council (BBC) to lobby the government about making exceptions for the reserves banks need to hold when lending to small- and medium-sized enterprises (SMEs) so that more businesses can get business loans and at cheaper rates.

Speaking at a forum hosted by the BBC on unlocking SME funding, Tlhoaele said banks have been constrained by, among other things, capital reserves they are required to hold under the Basel III international banking regulations.

The minimum reserves under Basel III were increased to strengthen supervision and risk management of banks after the 2008 global financial crisis. The regulation requires banks to hold additional reserves when they lend money.

“We are saying, in particular, we need to see whether the government cannot support some exemptions that will enable us to have a much better pricing regime for SMEs,” said Tlhoaele. 

Asked if this was not a reckless statement to make as Basel III capital requirements are about safeguarding the stability of the banking system, Tlhoaele said they were not advocating for SA to cease membership of the Basel committee, or to drop the international standards, but wanted the government to provide some kind of support for SME lending.

SA’s financial system is ranked 18th in the world by the 2018 World Economic Forum’s global competitiveness index. However, the index ranks financing of SMEs in the country at 72 out of 140 countries. The Banking Association of SA’s (BASA) 2019 transformation in banking report also showed that lending to SMEs declined by 7% between 2016 and 2017.

Tlhoaele said he is aware that SA cannot amend the terms of Basel III as it is an international regulation but believes there are ways in which capital adequacy requirements can be negotiated when banks lend to SMEs. “If we want to grow the economy, we cannot exclude that conversation,” he said.

BBC treasurer-general Bonolo Ramokhele said the additional reserve requirements put in place by the Reserve Bank for SA banks could be reviewed. He said SA banks were already in a stronger position than some banks in developed countries before the implementation of Basel III and did not need to “import” the international regulations. “We are living in a country that is, for all intent and purposes, developmental. We are not a first-world country.” 

Ramokhele said commercial banks should lend more to SMEs, especially entrepreneurs who do not have collateral. The development finance institutions that most of these entrepreneurs rely on, which include the Industrial Development Corporation (IDC), the National Empowerment Fund and the Small Enterprise Finance Agency, have a fraction of assets compared to commercial banks. “When you go to development finance institutions, you are knocking at institutions that have less than 10% of assets in the country.” 

However, Nedbank’s head of leveraged finance Greg Campbell said there is  no need for SA banks to drop the international standards to accommodate more entrepreneurs without collateral. “We’ve got the necessary risk frameworks in all the banks to accommodate a risk profile for this sector of the economy. I don’t think we need to drop our standards.”

He said banks’ balance sheets are well capitalised and have no reason for not lending more to SMEs; they simply need to find the right models to assess risk differently and to monitor SMEs they’ve lent money to.