Partnerships now vital to keep SA's business wheels turning

Banks, businesses, government, regulators and the broader financial services sector need to pull together like never before in a constructive partnership to help guide South Africa through what will be an extremely difficult economic period, the full scale of which is as yet unknown.

James Formby, Chief Executive Officer of Rand Merchant Bank, the corporate and investment banking arm of the FirstRand Group, said that it was currently engaging with many of its corporate clients to assess their needs.

“We aim to help them to keep the wheels of the economy turning despite the constraints. It’s vital for all South Africans that our corporate sector remains open for business even if it’s not business as usual.”

Formby said that RMB was following a ‘horses for courses’ approach in customising help for clients. RMB will offer extra funding, short term covenant waivers and also evaluate businesses’ capital structures to help enable them to withstand the longer term effects of Covid-19.

“It’s important to help companies look critically at their operations and cash flows now and some months ahead rather than just encouraging them to borrow more which may create more pressure in the future, “ Formby added.

He noted that while the response of South Africa’s banks was so far constructive, it was clear that a coordinated and much broader response was necessary.

“The challenge to the economy will only be overcome if government, regulators, the broader financial services industry and business work together in partnership. There are very encouraging signs that this is already happening. We need to get to the other side of this crisis with businesses that are strong enough to help the economy grow again.

“The South Africa Reserve Bank’s intervention in the bond markets last week for example helped improve liquidity and brought some stability to markets. Cutting the repo rate by 1% was also very welcome.”

He added that it was the responsibility of all financial market participants to keep the debt and equity markets functioning especially as the country’s reputation was on the line.

”How well we respond now will play a big part in attracting investments in the future when this phase has passed.”

Formby said that the crisis would affect different industries in different ways and the full impact of the shock to the economy would only be fully revealed over time.

“The hospitality industry for example is experiencing financial distress right now as hotels and restaurants are closed. We will travel again in the future so we need to help this this industry get back on its feet post the pandemic. The impact of the lock down will transmit to other sectors like property over a slightly longer period as the pressure on their tenants impacts rental payments. Each sector will need a carefully tailored approach.”

He also called on all businesses to pay staff and suppliers if they can to ensure that the economy does not freeze up and to allow businesses, particularly smaller businesses with more limited resources, to sustain normal operations as much as possible.

RMB has prioritised early invoice settlements for suppliers. Across the FirstRand Group over R1 billion has been processed in the last few days.

RMB remains committed to continue expediting payments to local suppliers to help improve their financial stability. This liquidity injection will also benefit the SME-sector, which is instrumental in sustaining ongoing economic activity.

Formby’s comments follow the announcement earlier this week that FirstRand had established SPIRE, the South African Pandemic Intervention and Relief Effort, which aims to assist Government and its partners in mitigating the impact of COVID19.

FirstRand has so far allocated an anchor investment of R100 million to SPIRE, funded by the FirstRand Foundations, FNB and RMB.
SPIRE is being driven by volunteers across RMB and the wider group.

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