Banking industry ‘can’t afford not to act’, says association MD Cas Coovadia
SA’s largest banks need to set up a ‘war room’ to co-ordinate a stimulus package aimed at restoring the country’s supply chain
The banking sector is in continuing discussions with regulatory authorities about the industry’s response to the spread of the coronavirus, Banking Association SA MD Cas Coovadia said on Tuesday.
The industry will also be talking to the competition authorities, to allow the large banks to discuss matters jointly, which they are ordinarily prevented from doing under competition law, said Coovadia.
As the economic ramifications of the virus’s spread have begun to set in, the government has proposed that part of economic support efforts include measures from commercial banks that would ensure credit lines and working capital arrangements are kept open for businesses and households.
But Iraj Abedian, CEO of pan-African Investment and Research, has called for more aggressive efforts by the financial services sector. The SA Reserve Bank — which regulates the banking industry through the Prudential Authority — and the country’s largest banks need to set up a “war room” to co-ordinate a stimulus package, aimed at restoring SA’s supply chain.
The SA government does not have the fiscal space to carry out a large fiscal stimulus, Abedian told Business Day. And monetary policy or a deep cut to interest rates by the Reserve Bank, though it has a part to play, cannot “be the beginning and the end of the intervention”, he said.
The central bank and the large financial institutions needed a co-ordinated response that would result in the banks “immediately passing on” interest-rate cuts by the Bank to their customers — particularly small and medium-sized enterprises (SMEs) and businesses that are in the front line of the effects of the virus, said Abedian. These would include firms in the tourism, travel and logistics sectors.
These efforts should include reducing the cost of credit to businesses, especially SMEs, and longer repayment terms as well as repayment holidays, he said.
Some local firms are seeing more demand for their goods as a result of the crisis — such as makers of hygiene products — but do not have the capital to expand their operations. Banks should proactively be offering them credit on more favourable terms, Abedian argued.
These offerings need to also be transparent and available to everyone, rather than just “those in the know”, he said.
An ongoing, co-ordinated, systematic response to the supply-side shock caused by the virus is “ the only way we will be able to avoid a deep recession”, said Abedian.
Coovadia said that the industry was “fully cognisant of the fact that the country is in crisis mode”.
“We can’t afford not to act, and do so urgently, and the industry will take necessary measures to minimise affects on staff, customers and others generally,” he said.
The industry is also working through platforms such as Nedlac to assist with responses.