On 22 March 2020, the Belgian finance minister, the National Bank of Belgium and Febelfin announced a series of measures to support lending to individuals and businesses financially affected by the Covid-19 crisis. The agreement reached between the federal government and the financial sector consists of two pillars:
- The federal government will activate a guarantee scheme for all new bank loans and credit lines with a maximum duration of 12 months to viable non-financial businesses and self-employed individuals. In this way, funding to the economy will be maintained.
- The financial sector has agreed to grant individuals and businesses that are financially impacted by the Covid-19 crisis a payment holiday in the form of a deferral of payments (betalingsuitstel/report de paiement) until 31 October 2020.
The political agreement on the aforementioned stimulus measures to counter the adverse effects of the Covid-19 crisis has now been implemented: (i) the state guarantee scheme is contained in the Act of 27 March 2020 (the "Act of 27 March 2020") and further implemented by the Royal Decree of 14 April 2020 granting a state guarantee for certain credit lines to fight against the effects of coronavirus, which has entered into force on 1 April 2020 (the "Royal Decree"), while (ii) the payment holiday (deferral of payments) takes the form of two charters, the "Mortgage Credit Charter" (Charter betalingsuitstel hypothecair krediet - Charte report de paiement crédit hypothécaire) for the deferral of payments on mortgage credit and the "Corporate Credit Charter" (Charter betalingsuitstel ondernemingskredieten - Charte report de paiement crédit aux entreprises) for the deferral of payments on business loans.
It should be noted that the European Commission has approved, under the EU state aid rules, the guarantee scheme. The Commission found that the Belgian scheme is in line with the principles set out in the EU Treaty and is intended to remedy a serious disturbance to the Belgian economy. In particular, the Commission determined that the scheme (i) covers guarantees for loans of a limited maturity and size, (ii) is limited in time, (iii) provides for minimum remuneration of guarantees, and (iv) contains adequate safeguards to ensure that the aid is channelled effectively by banks to beneficiaries in need.
1. The guarantee scheme
The federal government will activate a guarantee scheme for all new short-term loans and credit lines (excluding refinancing loans) with a maximum term of 12 months granted by Belgian credit institutions or branches of foreign credit institutions established in Belgium from 1 April 2020 until 30 September 2020 to viable non-financial companies, SMEs, self-employed persons, consumers and non-profit organisations. Refinancings and reinstatements of existing loans are excluded from the scheme.
This measure aims to stimulate lending and is characterised by the following features.
- Guaranteed loans. Firstly, the scheme aims to allocate the benefits and burdens fairly amongst all parties concerned. The guarantee scheme will be available to all credit institutions governed by Belgian law and registered branches in Belgium of credit institutions governed by foreign law and applies to most new loans and credit lines with a duration of up to twelve months. In order to diversify the guaranteed loan portfolio of each credit institution, the scheme applies automatically to all loans covered by the Royal Decree. Credit and loans to borrowers that are less impacted by the crisis will thus partially set off the risk associated with those granted to businesses or organisations in financial distress.
- Portfolio approach. Secondly, the scheme is based on a portfolio approach. The state guarantee secures the so-called guaranteed loss incurred by a lender on its guaranteed portfolio, consisting of the guaranteed loans. The state guarantee does not apply to individual loans but rather to the entire portfolio of new loans granted by a lender to eligible borrowers. Each lender may build up a portfolio of new credit and loans within the limits of its share of the total credit volume guaranteed by the federal government, namely EUR 50 billion (approximately 10% of GDP). The maximum share of each credit institution will be determined by the finance minister based on the credit institution's pro rata share (on a group basis) of the lending market as of 31 December 2019.
- Guaranteed loss. Thirdly, the scheme provides for the sharing of losses between the federal government and credit institutions. The loss covered by the state guarantee and partially borne by the federal government is that incurred by a given credit institution on its guaranteed portfolio. The extent to which the guaranteed loss is covered by the state guarantee depends on the percentage it represents of the credit institution's reference portfolio. The latter concept refers to all guaranteed loans a credit institution grants up to 30 September 2020. Credit institutions will bear the first 3% of losses on their reference portfolio; losses between 3% and 5%, will be borne equally by the credit institution and the federal government; the federal government will bear 80% of losses in excess of 5% on the reference portfolio.
- Participation fee. Finally, the scheme must be in line with the European legal framework. In order to benefit from the guarantee scheme, credit institutions must pay the federal government a fixed fee determined at European level, the rate of which is expressed as a percentage of the available principal amount of each guaranteed loan, i.e. 25 bps per annum for guaranteed loans to small and medium-sized enterprises and 50 bps per annum for guaranteed loans to all other companies. In order to ensure that the benefits of the state guarantee are passed on in full to borrowers, credit institutions may only charge borrowers an annual interest rate of up to 1.25%, and the aforementioned fee paid to the federal government, it being understood that a credit institution may still charge its usual fees (such as administrative costs and commitment fees).
2. Scope of the guarantee scheme
Which loans qualify?
The guarantee scheme is available for all new credit with a maximum term of 1 year granted by an eligible lender to an eligible borrower between 1 April 2020 and 30 September 2020, including those repaid before 30 September 2020.
"Credit" refers to any agreement whereby a lender grants or commits to extend credit, in the form of a loan, a credit line, an overdraft facility or similar credit facility arrangement. Syndicated loans may be covered by the guarantee scheme, even if all members of the syndicate do not qualify as eligible lenders, provided the eligible lender's share in the syndicate constitutes a sufficiently distinct commitment.
The following types of credit are excluded from the scope of the guarantee scheme:
i. refinancing of credit granted prior to 1 April 2020;
ii. reinstatements of credit granted prior to 1 April 2020;
iii. credit to businesses where the contract provides that the funds can only be used for the person's non-Belgian activities;
iv. leasing contracts;
v. factoring contracts;
vi. consumer loans and mortgage loans; and
vii. so-called "deselected" or excluded credit", i.e. credit which has been specifically selected by the lender at the time of grant for exclusion from the scope of the guarantee scheme (a lender may exclude only 15% of its total new loans from the scope of the guarantee scheme).
The aggregate principal amount of guaranteed loans granted to a borrower or group of affiliated companies may not exceed the lower of: (i) EUR 50 million or (ii) the borrower's liquidity needs for its activities over an 18-month period, for SMEs, or a 12-month period, for other companies, as from the grant of the credit. For an amount exceeding EUR 50 million but within the limits referred to in point (ii), government approval must be obtained.
The guaranteed loan should be used solely to finance the borrower's activities in Belgium or qualifying foreign activities, but in the latter case only up to 10% of the guaranteed loan and not to the detriment of Belgian activities.
Which lenders qualify?
Lenders eligible for the guarantee scheme are credit institutions licenced under Belgian law or branches of foreign credit institutions registered in Belgium which, at the end of 2019, had at least EUR 20,000 in outstanding credit to eligible borrowers.
Which borrowers qualify?
The guarantee scheme is aimed at all Belgian non-financial enterprises registered with the Crossroads Enterprise Database.
A "non-financial enterprise" is any unincorporated self-employed person or any legal entity (company or non-profit organisation) that does not qualify as: (i) a public entity or other counterparty connected with the government, (ii) a financial counterparty within the meaning of Article 3.3 of Regulation (EU) 2015/2365 of 25 November 2015, a payment institution or electronic money institution or a special purpose securitisation vehicle, (iii) a person granting exclusively or primarily credit on its own behalf as part of its usual commercial or professional activities, or (iv) a person whose subsidiaries are exclusively or mainly one or more of the entities referred to in point (ii) or (iii) above.
The following non-financial enterprises are excluded from the scope of the guarantee scheme:
i. any person in arrears of payment on 1 February 2020 or more than 30 days in arrears of payment on 29 February 2020 in respect of its current loans, taxes or social security contributions;
ii. any person in the process of active debt restructuring with one or more credit institutions on 31 January 2020;
iii. any person, based on available information, considered an enterprise in distress within the meaning of Regulation (EU) No 651/2014 of 17 June 2014.
3. Other provisions
Obligations of lenders and borrowers
The Royal Decree determines the obligations of lenders and borrowers.
An important protection for borrowers is their right to request that the lender pay back any interest received in excess of the maximum guaranteed interest rate and any fees in excess of the maximum guaranteed fee, increased by statutory interest as from the payment date.
For their part, borrowers are obliged (i) to refrain from requesting guaranteed loans if they are aware or should be aware that they do not satisfy the conditions, (ii) to provide the requested information and make the necessary declarations in an accurate and truthful manner, (iii) to use the guaranteed loans solely to finance their activities in Belgium or qualifying foreign activities, in the latter case provided such use is limited to 10% of the guaranteed loan and is not to the detriment of Belgian activities, and (iv) to refrain from unlawful practices.
The Royal Decree describes in detail the various situations in which a lender's guaranteed loss can be reduced.
Further, the state guarantee for the guaranteed loss may lapse in a number of cases: (i) the lender fails to submit an application to the federal government within the specified time limit, (ii) the lender fails to pay the fee to the federal government (see above) on time or in full, (iii) the lender fails to reasonably comply with the payment terms (other than in case of excusable negligence), (iv) the lender systematically engages in one or more of the unlawful practices specified in the Royal Decree, (v) the lender systematically refuses, in the period from 1 April 2020 until 30 September 2020, to renew credit which meets the eligibility requirements without an objective justification for its refusal, or (vi) the lender engages in fraud.
Specific provisions applicable to the state guarantee
The finance minister will clarify the procedure for lenders to apply for the state guarantee scheme, it being understood that they may do so until 31 March 2023 at the latest.
The benefit of the state guarantee scheme will be suspended in the event of non-payment or incomplete payment of the participation fee or failure to comply with the deferral of payments.
The state guarantee scheme applies only to the guaranteed loss on the guaranteed portfolio in its entirety.
Finally, it should be noted that a lender may not transfer or pledge any guaranteed loans, except as collateral to the National Bank of Belgium in order to secure financing granted by the latter to the lender.
1. Payment deferral
The Corporate Credit Charter introduces the possibility for a business that is financially impacted by the Covid-19 crisis to request a payment deferral (betalingsuitstel/report de paiement) on its loans for a period of up to six months.
2. Scope of the payment holiday for businesses
Which payments are covered?
The payment holiday enables a business to request a payment deferral for principal (capital) for a period of up to six months. A payment deferral can only be obtained for future instalments. The maturity date of the credit will be extended by the duration of the deferral.
Interest remains due and payable for the entire period of the deferral.
No arrangement or administrative fees may be charged by the lender for the grant of a payment deferral in the context of the payment holiday scheme.
Which enterprises can request a payment deferral?
A payment deferral can be requested by any non-financial enterprise, SME, (unincorporated) self-employed person or non-profit organisation that meets the following four cumulative conditions:
i. the enterprise is experiencing payment difficulties due to the Covid-19 crisis as a result of a drop in revenue or business activity, recourse to partial or full unemployment, or the government's closure order to stop the spread of coronavirus;
ii. the enterprise is permanently based in Belgium;
iii. the enterprise was in arrears of payment on 1 February 2020 or more than 30 days in arrears on 29 February 2020 under its loans, taxes or social security contributions;
iv. the enterprise complied in full with its contractual obligations to all credit institutions in the twelve-month period preceding 31 January 2020 and is not in the process of active debt restructuring.
Public authorities cannot request a payment deferral under this scheme.
Which types of credit qualify?
A payment deferral can be requested for the following types of business credit:
i. loans with a fixed repayment schedule;
ii. cash credit;
iii. fixed advances.
Payments under leasing or factoring contracts are not covered. Obviously, however, the parties are free to conclude a similar agreement amongst themselves.
When can a payment deferral be requested and for how long?
A payment deferral will not be granted automatically. An application must be submitted. In doing so, applicants must demonstrate that they are affected by the Covid-19 crisis (see point (b) above).
It has been possible to request a payment deferral since 1 April 2020. For applications submitted by 30 April 2020 inclusive, a deferral of up to six months can be obtained. For applications submitted after 30 April 2020, it will be possible to obtain a deferral until 31 October 2020, at the latest.
Efforts have clearly been made to work out a comprehensive framework for the state guarantee scheme. The scheme is – understandably – focused on Belgium and applies only to Belgian credit institutions and branches of foreign institutions registered in Belgium. Borrowers will only be able to use the guaranteed loans for their activities in Belgium or possibly abroad, provided such use is not to the detriment of their Belgian activities.
The details of the payment holiday are unfortunately less comprehensive. Some uncertainty remains regarding the scope of this measure, especially where the credit contains cross-border elements. Can a request for a payment deferral be addressed to a foreign credit institution? Does the scheme apply to credit governed by foreign law? What about the case where a Belgian enterprise is a co-borrower alongside foreign group companies? Is the scope of application analogous to that of the state guarantee scheme? This would make sense, but it remains unclear.
In addition, it is not clear to which extent lenders will be required to follow the rules laid out in the Corporate Credit Charter. Febelfin is a non-profit organisation representing the financial sector and has no regulatory authority. Neither Febelfin's articles of association nor the regulations of the National Bank of Belgium provide information on the legal value of such charters. Agreements between the finance minister and the financial sector are at most contractual in nature, and their enforceability against the general population thus raises some questions.
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