COVID-19: Belgian credit guarantee scheme

Introduction

• To guarantee the financing of the Belgian economy during the COVID 19 crisis, the Belgian Federal government, on the initiative of the Minister of Finance and with the support of the National Bank of Belgium, has drawn up an agreement with the financial sector. Under this agreement, a EUR 50 billion State guarantee has been created to secure certain credits and credit lines granted by lenders to Belgian companies, organisations and self-employed individuals (the Scheme).

• This Scheme has been formalized in the Royal Decree of 14 April 2020 on the granting of a State guarantee for certain credits in the fight against the consequences of the coronavirus (the Royal Decree).

Scope of the Guarantee Scheme

Under the Royal Decree, all credits meeting certain conditions are automatically protected under the Scheme except where they have been deselected by the Lenders and identified as such. The scope of the Scheme is in this respect delimited by the type of credit (What?), the entities or individuals to whom it is granted (Who?), the financed activities (For?) and the period during which the credits are granted (When?).

What?

Only contractual arrangements that have a maximum duration of 12 months whereby lenders, as defined in the Royal Decree, grant or agree to grant credits in the form of loans, credit facilities, permitted overdrafts or other similar payment facilities fall within the scope of the Scheme (the Guaranteed Credits). Finance leases, factoring contracts, and consumer and mortgage credits under Book VII of the Code of Economic Law are excluded.

Guaranteed Credits shall not:

• exceed a borrower's liquidity needs for twelve months (eighteen months for SMEs), up to a maximum of EUR 50 million (exception can be granted on a case by case basis); and
• have an annual interest rate higher than 1.25%. Lenders may however increase this annual interest rate to include the premium to be paid to the Belgian State (i.e. 50 bps in general and 25 bps for SMEs, calculated on an annual basis).

The term ‘lender’ is to be understood as any Belgian credit institution or branch of an EU or non-EU credit institution registered in Belgium which, on 31 of December 2019, had outstanding credits with one or more borrowers for a total and outstanding principal amount of at least EUR 20,000. In addition, and in order to preserve the eligibility of Guaranteed Credits under the Scheme, lenders have to comply with specific requirements such as sound and prudent management when granting and managing Guaranteed Credits, payment of a premium to the Belgian State, compliance with the deferral of payments scheme as set out in Annex I of the Royal Decree or the interdiction to transfer Guaranteed Credits.

Who?

Guaranteed Credits can only be granted to (A) viable, (B) non-financial entities that are duly registered with the Crossroads Bank for Enterprises (Banque carrefour des entreprises/Kruispuntbank voor ondernemingen).

• “Viable” means entities that:

  • were not late in paying any of their outstanding credits, taxes or social security contributions on 1 February 2020, or were not more than 30 days late in paying such outstanding credits on 29 February 2020;
  • were not subject to an active credit restructuring procedure with one or more credit institutions on 31 January 2020;
  • cannot, on the basis of the information available, be considered as ‘in difficulty’.

• “Non-financial” entities means any legal person or self-employed individual with the exception of :

  • public entities;
  • financial counterparties, payment institutions or electronic money institutions and special purpose securitisation entities or subsidiaries of such entities; and
  • entities which exclusively or principally grant credits on their own account in the course of their normal business or commercial activities or their subsidiaries.

For?

Guaranteed Credits may only be used by borrowers to finance activities in Belgium, it being understood that part of a Guaranteed Credit may still be used for qualified foreign activities (as defined in the Royal Decree). In this case, such use shall be limited to 10% of the Guaranteed Credit and shall not be at the expense of the borrower’s Belgian activities.

When?

Guaranteed Credits must be granted between 1 April 2020 and 30 September 2020 in order to be covered by the Scheme.

Underlying mechanism of the Guarantee Scheme

• Under the Royal Decree, all Guaranteed Credits granted by a lender (or any related entities) will be aggregated in a portfolio. Such portfolio will only be eligible for the State guarantee to the extent that the aggregate of all principal amounts available or outstanding at any time under the Guaranteed Credits does not exceed such lender's allotment of the State guarantee as determined by the Finance Minister in consultation with the National Bank of Belgium (the Guaranteed Portfolio).

• At the end of the Scheme, the amount of losses incurred on Guaranteed Credits granted by each lender will be reviewed and calculated on a portfolio basis. The burden-sharing between the financial sector and the Belgian State will be as follows:

  • The first 3% of losses on the Guaranteed Portfolio of each credit institution will be borne entirely by such entity.
  • For losses between 3% and 5%, 50% of the losses will be borne by the Belgian State.
  • For losses above 5%, 80% of the losses will be borne by the Belgian State.

• The Belgian State will only be liable for payment of losses that have been established to be irrecoverable by the lender by way of recourse against the borrower, against third parties or in any other manner (the Guaranteed Losses). In this respect, where all or part of the Guaranteed Losses of an entire Guaranteed Portfolio is also recoverable from other guarantees which have been given on all or part of the Guaranteed Portfolio, the Guaranteed Losses or the relevant part thereof shall be reduced pari passu by the amount covered by such other guarantees, unless otherwise agreed between the Belgian State and such other guarantors.

• Lenders will have until 31 March 2023 to appeal to the Belgian State for payment under the Scheme.

See our Coronavirus (COVID-19) feature for more information generally on the possible legal implications of COVID-19.