BANKS MUST LEAVE NON-BANK INSTITUTIONS ALONE

I find it ironic to read that banks and non-bank institutions are at each other’s throats, fighting over customers - borrowers to be precise!  If anything, this tells us that times do change.

I mean, some of us retired poor because banks could not afford us loans to start our dream projects just because, according to the banks, our business propositions were not viable or were considered risky. Why? Just because the banks were alone in the market and were therefore doing as they pleased. Borrowers were regarded as beggars who came cap in hand to request small loans which were declined with impunity. I mean, nobody cared for borrowers except for the large corporations with big balance sheets.
Times do change indeed. To have banks lament how the non-bank institutions have started playing in their space is interesting.

Reading what was attributed to Phil Mnisi, the Chairman of the Swaziland Bankers Association (representing all the banks and the Building Society, although the latter being, by definition, a non-bank institution) I couldn’t help but think that the banks are getting desperate.

I mean, to bemoan the situation to the extent of citing examples of corporate borrowers which borrowed funds from a bank, but later ditched the loan to use their own funds, was deplorable. Again I ask myself what became of the confidentiality code and protecting borrowers from having their financial affairs made public if news of their borrowings is splashed around in the press like they have done something criminal?

Businesses have a right to choose where to borrow money from without someone going around complaining about it.
My take is that non-banks are playing in a different space now, a space that banks never wanted to play in for a long time. That space is equity participation, partnering with business in the provision of capital or even shareholdings. That the relationship has in some cases developed to financing working capital for business is a function of a need that is not being met by commercial banks.

Government has, on many occasions, asked banks to come to the party to assist business, particularly SMEs, but the banks have seemingly refused to play ball. Remember the E1.5bn SME Fund that banks whipped numbers together to convince the then-Minister of Finance into believing they were committed to funding business loans?

Unsecured

The thinking then was that the banks were going to issue unsecured loans or loans with better terms and conditions to SMEs. That, as we know, never took off. Banks have always insisted on terms and conditions requiring high levels of security at every turn.
And, as we speak today, the Small Scale Guarantee Scheme, we hear, is almost exhausted. Why? The simple answer is that, no matter what government does to make SMEs access loans through the banks, the banks require more security from government.

These loans used to have a E250 000 limit before but now, with the increased ceiling of E500 000, government has to fork out E475 000 (95 per cent) and the borrower has to find E25 000 (the other 5 per cent). So, for the same number of borrowers that were reached before, government has to fork out double what it used to. The question is, are the banks not supposed to assume some measure of risk in this business? Rational thinking says they should but the reality is that they are reluctant to. In hindsight, I think government should use the Small Scale Guarantee scheme with the likes of FINCORP, SNPF or Inhlonhla; people who are willing to put their money where their mouth is.
Some, or most, of these banks have South African parentage or South African ownership and, in South Africa, the banks contribute immensely to the economy. Consider the FNB Stadium and God knows what else. So what have they done in this country besides charging customers exorbitantly for their services? The Central Bank has been on this topic for time on end, without success.

Now that the non-bank institutions have come to the party, trying to give us the kind of loans that banks have resisted providing for many years, they are up in arms? And one of their objections to what these intermediaries are doing is that they offer these loans at 2 per cent below prime? Why are they concerned what these institutions are charging us? I find it mischievous for banks to question the non-bank institutions on the pricing of loans. I mean, they can also do the same because they get funds from depositors from as low as 2 per cent with the current interest rate regime and they charge prime at 8.5 per cent or better, a margin on the order of 6.5 per cent! I mean, they can also leverage this to compete with non-bank institutions if they are up for the game.

Then the SBA has the nerve to say the activities of non-bank institutions could collapse the financial service sector due to bad debts. The question I ask is, who doesn’t run a non-performing portfolio? Even the most astute of credit policies has casualties - bad debts or non-performing loans - because business does fail sometimes.

The banks are no exception to this rule. And once your business has been relegated to bad debt, the bank’s only desire one thing of you; foreclosure. The non-banks, on the other hand, are willing to put you on a workout programme until your business recovers.
My plea is that the banks must just cool it and let the non-banks do their thing, just as the non-banks are not complaining about the E150 000 unsecured personal loans that banks are issuing these days!

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