A lower interest rate environment would certainly bolster South Africa’s lenders, says Paragon Lending Solutions CEO, Gary Palmer.
This is ahead of the country Monetary Policy Committee (MPC) meeting later on Thursday.
“An interest rate decrease would certainly fuel the economy slightly more than its doing at the moment. There are borrowers out there that need [that] to grow their businesses,” he told CNBCafrica.com.
“When interest rates start increasing, it makes matters worse; it makes lenders a lot more conservative so there’s no question, what will really promote business and will stimulate the economy is a lower interest rate environment – that’s what we’re all hoping for.”
However, Palmer added that while this would aid lenders, it would seem that interest rates will remain flat.
“Given what I’ve read, speaking to clients, I doubt that interest rates will increase. I suspect interest rates will probably remain flat given the inflation numbers that have come out,” he stated.
“Given the general state of the economy and given the stagnant growth, I’d expect interest rates to remain flat, and I’d be pleasantly surprised if interest rates come down.”
Due to the current environment, many small and medium-sized businesses have struggled to gain access to funding.
“Lenders, as a whole, including the banks, have become exceptionally conservative. The memories of 2008/2009 are still there and the level of bad debts in the market, albeit not as high as 2008, are still there,” Palmer said.
“There’s a little bit of an uptick in the amount of liquidations that are happening and business rescue matters. A new factor that’s affecting a lot of lenders at the moment is government institutions not paying small businesses on time so there’s many factors affecting small business at this stage.”
However, he emphasised the fact that there is more than enough deal flow in the lending market and that borrowers have now got more choices than they did before.
“There’s been a big emergence of new lenders into the market. Before 2008, the focus was definitely on the big four commercial banks but since they’ve been pulling back, we’ve definitely seen a change of the lending landscape,” Palmer said.
“You’ve got other institutions coming into the market to offer finance and you’ve got a lot of smaller lenders, even banks, being a lot more aggressive. What we’ve [also] definitely seen is an emergence of non-bank lenders.”