Belgian Covid-19 guarantee scheme
On 27 March 2020, the Belgian Federal Parliament adopted an act (the Act) authorising the Belgian government to provide a State guarantee for certain credit facilities in an effort to curb the effects of the Covid-19 virus on the economy.
To implement the Act, the Belgian Federal Government adopted a royal decree on 14 April 2020 (the Royal Decree) granting a State guarantee (the State Guarantee) for certain credit facilities in an effort to curb the effects of the Covid-19 virus on the economy (the Guarantee Scheme). The main objective of the Guarantee Scheme is to maintain lending to the real economy and the non-profit sector.
The Guarantee Scheme forms the second pillar of the two-part agreement between the government, the National Bank of Belgium and the banking sector. The first pillar includes a commitment by the banking sector to grant affected businesses (and individuals) a six-month deferral of payment (the Deferral of Payment). This commitment took the form of two charters published on the Belgian banking federation Febelfin's website, both dated 31 March 2020. The second pillar is the Guarantee Scheme laid down in the Royal Decree. From a policy point of view, both pillars are interlinked, so that the Royal Decree occasionally refers to the Deferral of Payment as a modality, or as a condition for maintaining the State Guarantee.
The Guarantee Scheme is based on, among others, the following general features:
- Firstly, the scheme aims at a broad mutualisation of the risk. This is a deliberate choice, which aims to spread both the advantages and the burdens of the Guarantee Scheme as widely as possible. The State Guarantee is granted to all credit institutions governed by Belgian law and branches in Belgium of credit institutions governed by foreign law. It applies to most new loans of up to 12 months. If the eligibility criteria (set out below) are satisfied, the scheme applies ipso jure and automatically to all credit facilities covered by the Royal Decree. By the State Guarantee applying automatically to all eligible credit facilities, the aggregate guaranteed credit portfolio is as diversified as possible. This also makes it possible to spread the cost of the State Guarantee (the premium) as widely as possible.
- Secondly, the Guarantee Scheme is based on a portfolio approach. The State does not guarantee individual loans, but guarantees loan portfolios per credit institution. The loss and the loss contribution is calculated at portfolio level. Each credit institution may build up a portfolio of new credits within the limits of an envelope assigned to it. That envelope shall be the share of the credit institution in the maximum amount of credit facilities guaranteed by the State Guarantee (EUR 50 billion).
- Thirdly, the proposed scheme provides for a distribution of the losses between the State and credit institutions. This loss sharing reflects the principle that the State aid should be limited to the minimum and aims to make the risk for the State and the taxpayer as manageable as possible.
- Fourthly, the scheme must fit into the European legal framework on state aid.
This briefing provides an overview of certain of the key elements of the Guarantee Scheme set out in the Royal Decree, with a particular focus on the eligibility criteria.
Please click the link below to download the full briefing.