Payment holidays have been used throughout South Africa and around the world to help alleviate the economic stress during the COVID-19 lockdown. In this blog, we look at some of the steps taken internationally and by some of South Africa’s major lenders (specifically in the consumer space).
Principa have been helping many of our clients adjust models, analyse the probable impact, recalculate provisions. Our Analytics ICU programme can help your company better understand the impact of the economy on your models including the use of payment holidays. Email us here to find out more.
International measures to help alleviate economic stress
The credit world has reacted radically to the COVID-19 crisis. Payment holidays, interest reduction and emergency loans have been offered across the globe to help consumers and businesses survive this tough period. Let’s explore some of the measures employed in certain countries:
The USA – The Cares Act has mandated that all borrowers with government-backed mortgages must be allowed instalment relief of up to 12 months. Foreclosures also stopped for a while. Payment holidays have been widespread. Interest rates were also reduced to 0.
In the UK – widespread payment freezes – 3 months at a time up to the end of October- have been instituted by lenders across different credit products. This along with an interest rate decrease to 0.1%, furlough schemes and suspending repossessions up until 31 October 2020 have been used to help the stressed consumer.
Spain – 3-month suspension of mortgage payments, 3-month suspension of debt repayment with no accrual of fees and interest.
Brazil – 2-3-month loan repayment suspensions widely offered. An increase in credit limits on overdrafts and credit cards increased flexibility on provisions for 6 months also in place.
India – 3-month mandated suspension of repayments, easing of issuing of credit requirements.
South Africa’s measures to help alleviate economic stress during COVID-19
Whilst credit insurance, particularly amongst micro-lenders, was the first option to provide relief to borrowers, South African lenders have widely been implementing payment holidays too. As a quick run-down, here are what some of the major lenders (including the big 5 banks) have offered/are still offering.
Standard Bank offers 3-month payment relief to those earning less than R7,500.
Nedbank offer 3-month instalment relief. Reduced minimum instalment on a credit card to 2.5%. 50% off home-loan instalments.
Absa – offered 3-month instalment relief to 730,000 customers and some reduction in fees.
Capitec – offered a 3-month payment holiday (automatic) with a 100% interest refund offered.
FNB – offered 3-month payment breaks to 500,000 customers, but also additional “cheap” loans to help service the debt.
African Bank – payment breaks over a “short period” with the term extended to cover interest and fees.
Direct Axis offer 3-month payment relief with reduced interest to those who apply.
Capfin – no payment holidays offered.
Bayport – customised payment arrangements offered for up-to-date customers. Also, debt consolidation as usual.
Finchoice – their product already features a payment holiday facility.
TFG – 2 months payment holiday over April and May.
Mr Price – did not age their book in March and April.
Edcon (RCS) – offered an automatic payment holiday for those in good standing.
Other Retailers have offered anything from 1 month to 4 months payment holiday from April.
Looking into the future
Most South African lenders have employed an opt-in approach to payment relief and whilst widespread requests were received, much of the payment holidays were dealt with on a case-by-case basis. Since the standard payment holiday period for most lenders (i.e. 3 months from April-June) has ended, lenders have continued to offer extended payment deferral for those requesting it (subject to qualification). From a provisioning perspective – the non-rolling of accounts artificially created a positive book position, but this position of course was/is false, and lenders have counter-acted this by manually overriding their expected losses and increasing the provision holding post-August 2020. Many lenders are reporting the expected catch-up roll rates following June 2020.
Other countries, for example, Saudi Arabia (delaying repayment for one year), the UK (payment freeze applications mandated to be accepted until at least 31 October), the USA (mortgage freezes for one year) have opted to offer more aggressive assistance to their citizens.
Payment holidays might delay the inevitable; it will therefore be interesting to see for how long South African lenders are charitable to their customers and to what extent they are able to find win-win mechanisms to support their clients over this extended difficult period.
In a future blog, we will be looking at 2 case studies of lenders offering payment holidays. Be sure not to miss it.