South Africa permits banks to cooperate in Covid-19 debt relief
On 23 March 2020, Minister Patel, the South African Minister of Trade, Industry and Competition, adopted a block exemption permitting banks to develop industry positions on a range of issues relating to business and personal indebtedness during the Covid-19 pandemic such as payment holidays and debt relief. In addition, banks have been granted permission to coordinate on operational issues in order to maintain the payment system during the pandemic (such as the availability of bank notes and bank infrastructure).
The banking block exemption is the second one adopted in response to the Covid-19 pandemic after stakeholders in the private healthcare sector were given the go-ahead to coordinate on procurement and stock availability. A third block exemption has been subsequently adopted dealing with retail property sector.
A block exemption provides a dispensation to entities within the relevant sector from complying with the requirements of the Competition Act due to overriding public interest considerations. In this regard, a block exemption permits a range of conduct that would otherwise attract fines amounting to 10% of the annual turnover for a first time offender and 25% of annual turnover for a repeat offender.
The banking block exemption allows cooperation between banks in the context of the Banking Association of South Africa (BASA), the industry trade association, and the Payments Association of South Africa (PASA), the payment system management body recognised by the South African Reserve Bank.
Cooperation is only permitted under the block exemption if it is at the request of, and in coordination with, the Minister of Trade, Industry and Competition or the Minister of Finance and is for the sole purpose of responding to the Covid-19 pandemic. The block exemption does not allow any communication and agreements in respect of prices unless specifically authorised by either Minister.
In terms of addressing business and personal indebtedness during the Covid-19 pandemic, under the auspices of BASA, banks may develop and monitor industry policies on:
- payment holidays and debt relief for business and individual debtors subject to financial stress;
- limitations set on asset repossessions of business and individual debtors subject to financial stress; and
- the extension of credit lines to businesses and individuals subject to financial stress.
In addition, the block exemption allows banks to coordinate on a number of payment operational issues, which are likely to be highly significant given that South Africa will be under lock-down for 21 days from 26 March 2020. In particular, within the context of PASA, banks may coordinate to avoid disruption in:
- the availability of bank notes to ATMs, branches and businesses;
- the provision of essential ATM, branch and corporate banking services; and
- the provision of electronic payments systems.
The block exemption continues the Competition Commission’s pragmatic approach regarding the application of the Competition Act during the Covid-19 pandemic. As the scope of the block exemption is limited to banks, it may however be questioned as to how similar issues from non-bank lenders should be addressed. Non-banks are not only active in unsecured lending (especially micro-lending) in South Africa but also in vehicle and home finance.