The coronavirus crisis and the ensuing financial effects for many Belgian businesses have raised questions regarding their obligations towards the banks. One of the most pressing questions is how companies should deal with their payment obligations arising from such loans.
Over the past few days, an agreement has been in the process of being drafted by the Federal government, the National Bank of Belgium and the Belgian banking sector.
We understand that this agreement will consist of two pillars:
First, the banks should provide viable companies experiencing payment problems (solely) due to the coronavirus crisis with the option of deferring their payment obligations until 30 September 2020 without any additional charges.
Second, the Federal government will activate a guarantee scheme for all new credit and credit lines (bridging loans) of up to a 12-month duration that the banks will grant to companies. This step is to ensure that the financing of the Belgian economy is maintained.
The maximum amount of bridging loans that the state guarantee will cover is €50 billion. The current lending by Belgian banks amounts to €150 billion, so this additional amount is very substantial. All new credit and credit lines with a maximum duration of 12 months (excluding the refinancing of existing credit) that will be granted up to and including 30 September 2020 will be covered by the guarantee scheme.
At the end of the guarantee scheme, the amount of losses incurred on the credit arising under the guarantee scheme will be reviewed. The burden-sharing between the banks and the Belgian state will be as follows:
- The first 3% of losses (or €1.5 billion) will be borne entirely by the banks.
- For losses between 3% and 5%, 50% of the losses will be borne by the banks and 50% by the Belgian state.
- For losses above 5%, 80% of such losses will be borne by the government and 20% by the banks.
This means that if the scale of the crisis is relatively contained, only the banks will have to intervene without any form of state support. For example, the losses encountered during the 2008 financial crisis were around 1%. In this case, a crisis that is 3 times bigger will have to be encountered to trigger any state support. This is different from Belgium’s neighbouring countries where their governments are intervening much more. The draft guarantee scheme is a very serious burden on the Belgian banks.
The agreement is not yet in a final form. The Federal government, the National Bank of Belgium and the banking sector are still discussing the last details and we expect to have a final agreement before the end of this week.
ALTIUS – Banking & Finance team – ready to help
The above information is merely intended as comment on relevant issues of Belgian law and is not intended as legal advice. Before taking action or relying on the comments and the information given, please seek specific advice on the matters that are of concern to you.