Payment Holidays and Extended Credit Terms: Providing Debt Relief During COVID-19
14 May 2020
As the State President’s declared lockdown is implemented, the effects on economic activity and individuals will be keenly felt. In the case of individuals, many will have to work reduced hours with related cuts in remuneration. Even worse, many will face retrenchment.
Many consumers won’t be able unable to service monthly commitments like insurance policies, mortgages and vehicle instalments. In South Africa, certain banks have announced that they will grant relief to customers through repayment holidays for a period of time. The loans will continue to attract interest, which will be capitalised and the repayment terms adjusted.
The South African Reserve Bank (SARB) has recently reduced the repo rate by 100 basis points and has also announced that it is introducing measures to provide additional liquidity to the market. The actions being taken by the SARB could be viewed as a form of quantitative easing (although they have not used that term).
On 26 March, the Prudential Authority issued three proposed Directives aimed at:
- providing capital adequacy relief to banks and at the same time encouraging banks to continue to extend credit to customers, in particular households and small businesses, by relaxing certain capital adequacy requirements
- providing temporary relief to banks in meeting the Liquidity Coverage Ratio (LCR)
- providing guidance in relation to loans restructured due to Covid-19. In addition, the PA has issued Guidance Note 3/2020, which outlines the expectations of the PA when the requirements of IFRS 9 are applied to payment holidays and other relief measures, including government guarantees and other subsidies provided as a result of Covid-19.
The Financial Sector Conduct Authority (FSCA) announced on 24 March 2020 that it was putting in place certain arrangements in respect of extending the deadlines regarding the submission of certain statutory returns and fit and proper related deadlines. The PA has not yet announced whether banks, insurers and other entities regulated by it, would receive similar dispensations.
These actions by the SARB, the PA and the FSCA, will provide some relief to banks, their clients and the economy in general as the fight against COVID-19 continues.
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