A summary of the guarantee scheme for the Covid credits granted from 1 April 2020 to 30 September 2020, whose principles appear in the Royal Decree of 14 April 2020 granting a state guarantee for certain credits in the fight against the consequences of the coronavirus.<\/p>\n
On 27 March the law empowering the King to grant a state guarantee for certain credits in the fight against the consequences of the coronavirus, and amending the Act of 25 April 2014 on the status and supervision of credit institutions and stockbroking firms, was passed. It empowers the King to introduce a regulation on a state guarantee so that guarantees can be granted for the credits concerned as quickly as possible. The arrangements were specified by the Royal Decree of 14 April 2020 (the Royal Decree). The scheme adds to the banking sector’s commitment to grant businesses and individuals a payment deferral on credits, as enshrined in the charters on payment deferrals. The government’s objective is to maintain the granting of credit to the real economy and the non-profit sector, and to mutualise risks between the banks and the State.<\/p>\n
Within each bank, all new credits covered by the Royal Decree with a maximum duration of 12 months, granted no later than 30 September 2020 (any extension to be decided by the government) (the Guaranteed Credits), granted by Lenders to Borrowers, are placed in a portfolio in which losses resulting from payment defaults are shared between the Belgian State and the credit institution concerned. The guaranteed loss is the sum of the losses incurred by a bank on its guaranteed portfolio. The extent to which the guaranteed loss is compensated by the state guarantee depends on the percentage that this loss represents relative to the bank’s reference portfolio.<\/p>\n
Which businesses are covered (the Borrowers) or excluded?<\/strong> Covered: all non-financial businesses, including self-employed workers and non-profit legal persons registered with the Crossroads Bank for Enterprises; healthy businesses (the bank may rely on a signed declaration by the business, preferably with an independent financial expert’s report, unless it reasonably knows of contradictory information); it is not necessary for the Borrower seeking credit to be specifically impacted by the health crisis. Excluded: covered businesses that had payment difficulties before the crisis, namely a payment arrear on 1 February 2020 on current credits, taxes or social security contributions; or an arrear of more than 30 days on 29 February 2020; or an active credit restructuring procedure ongoing on 31 January 2020; or a business subject on 31 December 2019 to judicial reorganisation or meeting its conditions; or where more than half the subscribed capital has disappeared through accumulated losses; or, for a business other than an SME, over the two previous financial years, a debt-to-equity ratio above 7.5 and an interest coverage ratio (on EBITDA) below 1.0.<\/p>\n Which credits are covered or excluded?<\/strong> Covered: all new credits or credit tranches such as cash credits, straight loans (including bullet credits\/fixed-term advances), credit facilities, guarantee facilities, overdraft facilities, syndicated credits and club deals, provided they were granted between 1 April and 30 September 2020 and have a maximum duration of 12 months (or allow discretionary termination by the lender during the first 12 months). Also covered are credit lines granted for an indefinite duration but terminable by the lender at its discretion. Excluded: credits financing exclusively foreign activities (with exceptions, a 10% threshold being tolerated); refinancings and new draw-downs of existing credits granted before 1 April 2020; deselected credits; finance leases, factoring, consumer credit and mortgage credit; and credits above EUR 50,000,000, save a derogation granted by the King.<\/p>\n The reference portfolio and deselection of credits.<\/strong> The State does not guarantee individual credits but credit portfolios per credit institution; loss and loss contribution are calculated at portfolio level. Each institution forms a reference portfolio comprising all the guaranteed credits it granted between 1 April and 30 September 2020, including those repaid by that date, within its allocated envelope, limited to the total envelope multiplied by 1.75%; deselected credits are added. Banks may deselect, within strict limits, part of their (otherwise guaranteed) credits from the state guarantee, keeping up to 14.785% (rounded to 15%) of total credits outside the scheme. The choice is made only when the credit is granted and is irrevocable. The same borrower may be granted credits both with and without guarantee. Deselected credits are not covered and the guarantee commission is not payable, but they remain in the reference portfolio; a sanction applies where deselected credits exceed 15% of the reference portfolio.<\/p>\n Granting the credits: constraints on interest rates and non-assignability.<\/strong> Lenders must pay a fixed European minimum premium to benefit from the guarantee. This premium may be passed on to borrowers through an interest rate increased by 0.25% for SMEs and 0.50% for large businesses. The maximum guaranteed interest rate (banks may apply a lower one) is 1.25%; the usual fees may still be charged in addition, plus the premium. In case of deselection the minimum premium is not due, but these credits are still counted in the reference portfolio for any loss sharing. Reductions of a covered credit do not give rise to reimbursement of premiums already paid. Finally, the bank may not assign the guaranteed credits, failing which the guarantee lapses.<\/p>\n Time limit for calling the guarantee and its implementation.<\/strong> The state guarantee may be called until 31 March 2023. To avoid difficulties over the time needed to enforce other securities and liquidate assets in any bankruptcy, a loss on the portfolio need not already be established or provable at the time of the call; in such conditions the call does not entail payment. Schematically, banks must: list the guaranteed credits liable to give rise to a loss; call the state guarantee before 31 March 2023 for the estimated loss; exhaust all assets and other securities they hold on each credit; and receive payment by the State up to what the Royal Decree provides. The guarantee is granted subject to the benefit of discussion; the State is only liable for payment where the lender’s loss has become definitive, without prejudice to any advances.<\/p>\n Certain provisions of the Royal Decree call for the greatest prudence from the managers of the banks’ Credit\/Recovery\/Restructuring\/Intensive care departments and their branches. Notably, besides the loss of guarantee on assignment or securitisation of the credit, if between granting the credit and calling the guarantee the Lender grants the borrower renegotiation measures, the guaranteed loss could, under certain conditions, be reduced. Likewise, a negligently granted credit could reduce the guarantee; if such negligence (such as charging extra fees not provided in the general conditions, or making the conclusion of a guaranteed credit contract conditional on concluding other contracts) is applied systematically or on a large scale, the whole state guarantee is lost. Losses on credit contracts lacking the specific provisions required by the Royal Decree are deducted from the amount guaranteed; these clauses concern notably the State’s subrogation into the lender’s rights and the financing of Belgian or qualified foreign activities (limited to 10% and not to the detriment of Belgian activities).<\/p>\n Other clauses must be included, notably the Lender’s guarantee to the State against any actions brought by the Borrower or related persons; all the declarations to be made by the Borrower (viability, absence of payment arrears on 1 February 2020 or of less than 30 days on 29 February 2020); and limits relating to the EUR 50 million ceiling to avoid multiple credit applications exceeding it. Guaranteed credits not included in a state-guarantee report also reduce the guaranteed loss. Likewise, if the bank did not encourage the borrower to seek other available securities for the guaranteed credit, the loss on the new credit is deducted from the State’s intervention. The guaranteed loss is reduced by all losses on guaranteed credits for which the lender does not guarantee the State against actions by the borrower or related persons. Granting a new security after 1 April 2020 covering an earlier or deselected credit could reduce the guaranteed loss if the State considers it could have covered, even partly, the guaranteed credits. If, systematically or on a large scale between 1 April and 30 September 2020, the bank refuses without objective justification to renew credits granted before 1 April 2020 and maturing before 30 September 2020, where the borrower met the conditions, the guarantee lapses. Finally, a Lender forfeits the guarantee if it fails to call the State in time, does not pay the premium (in time or in full), or does not respect the payment deferral, save excusable negligence.<\/p>\n Finally, each bank must keep a register of all guaranteed loan applications submitted, including the Borrower’s identity and the amount sought, and the outcome of each. Banks must submit monthly reports to the National Bank on the total loan applications received and their outcomes.<\/p>\n This article is a translation and a condensed version. Only the French version is authoritative. It is provided for information purposes and does not constitute legal advice.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" A summary of the guarantee scheme for the Covid credits granted from 1 April 2020 to 30 September 2020, whose principles appear in the Royal Decree of 14 April 2020 granting a state guarantee for certain credits in the fight against the consequences of the coronavirus. 1. Context of the Covid credit guarantee On 27… Continue Reading →<\/a><\/p>\n","protected":false},"author":185562167,"featured_media":2673,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_coblocks_attr":"","_coblocks_dimensions":"","_coblocks_responsive_height":"","_coblocks_accordion_ie_support":"","advanced_seo_description":"Belgium's Covid state guarantee (Royal Decree of 14 April 2020) covered new credits granted from 1 April to 30 September 2020. Covered borrowers and credits, the reference portfolio, rates and the banks' duties.","jetpack_seo_html_title":"State Guarantee for Certain Credits Granted from 1 April to 30 September 2020","jetpack_seo_noindex":false,"jetpack_seo_schema_type":"","_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":true,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_wpcom_ai_launchpad_first_post":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[6325],"tags":[],"class_list":["post-9592","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-non-classe","clear","fallback-thumbnail"],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/droitbancaire.be\/wp-content\/uploads\/2018\/05\/reading-4620776_1920.jpg?fit=1920%2C1280&ssl=1","jetpack_likes_enabled":true,"jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/pbYDZD-2uI","jetpack-related-posts":[],"_links":{"self":[{"href":"https:\/\/droitbancaire.be\/en\/wp-json\/wp\/v2\/posts\/9592","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/droitbancaire.be\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/droitbancaire.be\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/droitbancaire.be\/en\/wp-json\/wp\/v2\/users\/185562167"}],"replies":[{"embeddable":true,"href":"https:\/\/droitbancaire.be\/en\/wp-json\/wp\/v2\/comments?post=9592"}],"version-history":[{"count":1,"href":"https:\/\/droitbancaire.be\/en\/wp-json\/wp\/v2\/posts\/9592\/revisions"}],"predecessor-version":[{"id":9593,"href":"https:\/\/droitbancaire.be\/en\/wp-json\/wp\/v2\/posts\/9592\/revisions\/9593"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/droitbancaire.be\/en\/wp-json\/wp\/v2\/media\/2673"}],"wp:attachment":[{"href":"https:\/\/droitbancaire.be\/en\/wp-json\/wp\/v2\/media?parent=9592"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/droitbancaire.be\/en\/wp-json\/wp\/v2\/categories?post=9592"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/droitbancaire.be\/en\/wp-json\/wp\/v2\/tags?post=9592"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}4. Vigilance required from banks’ credit and restructuring departments: risk of reduction or loss of guarantee<\/h2>\n