Guarantee scheme for individuals and companies affected by the corona crisis
22 March 2020 – The federal government, the National Bank of Belgium and the financial sector are joining forces to maintain lending to private individuals, self-employed people and businesses.
The coronavirus not only threatens our health, it is also hitting our economy particularly hard. A large proportion of employees are facing temporary unemployment and many companies and self-employed people are forced to temporarily close down. Other companies and self-employed people are being forced to reduce their activities significantly because they can no longer get the required parts or because customers are staying away.
Within the framework of the Federal Plan for Social and Economic Protection, the federal government has already taken a series of exceptional measures to cushion the economic blow for employees, businesses and the self-employed. These measures include deferral of payment of personal income tax, withholding tax, VAT and social security contributions. This provides a buffer to absorb the first financial shock. The option of temporary unemployment due to force majeure has also been relaxed and a bridging right has been introduced for the self-employed.
Overheads and cashflow problems
Despite all these measures, many companies, self-employed people and private individuals are left with significant fixed costs. They have to repay loans, pay rent and invoices, resulting in cash flow problems.
Alexander De Croo, Finance Minister: “This is an exceptional crisis that calls for exceptional measures. We are currently doing everything we can to prevent healthy businesses from going under and families from facing payment difficulties. That would set off a downward spiral and only exacerbate the current crisis. We are doing everything we can to assist families and businesses.”
Johan Thijs, Chairman at Febelfin: “The Belgian banks want to support the economy as much as possible in this difficult period. They are going to make an unprecedented effort with regard to businesses and private individuals who are suffering the financial consequences of the crisis. The aim is to give them every opportunity to move quickly towards normalising the situation, with the least possible damage on all fronts. In a word: the banking sector provides maximum support for the continuity of Belgian businesses and private individuals."
"We certainly must avoid that companies, self-employed people and families who did not have financial problems before the corona crisis get into trouble due to the severe shock caused by this pandemic," says Governor Pierre Wunsch. "Through the package of measures we are announcing today, we are taking a major step in that direction. Our country is launching a financial bazooka to safeguard lending to Belgian companies and the self-employed even during the crisis months and to deal with any problems that may arise. In addition, banks will offer a six-month moratorium on existing loans to Belgian businesses, self-employed people and private individuals facing payment problems as a result of the corona crisis. Both the banks and the government have made a very substantial effort. The central banks of the euro area, such as your National Bank of Belgium together with the ECB, are doing everything necessary to mitigate the effects of this crisis.”
Deferral of payment and guarantee scheme
In order to safeguard funding for families, the self-employed and businesses during this difficult time, the federal government, on the initiative of the Finance Minister and with the support of the National Bank of Belgium, has drawn up an agreement with the financial sector.
This agreement consists of two pillars:
1. The financial sector undertakes to grant viable, non-financial businesses and the self-employed, as well as mortgage borrowers having payment problems as a result of the corona crisis, postponement of payment until 30 September 2020 without charge.
2. The federal government will activate a guarantee scheme for all new loans and credit lines with a maximum duration of 12 months, which banks provide to viable, non-financial businesses and to the self-employed. In this way, funding to the economy will be maintained.
The guarantee scheme will have the following characteristics:
- A total guarantee amount of EUR 50 billion.
- All new additional credits and credit lines with a maximum maturity of 12 months (excl. refinancing credits) provided until 30 September 2020 will be covered by the guarantee scheme.
- Upon expiry of the guarantee scheme, the amount of losses incurred on the credits under the guarantee scheme will be assessed. The burden shall be shared between the financial sector and the public sector as follows:
o The first 3% of losses will be borne entirely by the financial sector.
o For losses between 3% and 5%, 50% of the losses will be borne by the financial sector and 50% by the government.
o For losses over 5%, 80% of the losses will be borne by the government and 20% by the financial sector.
This means that if we head towards a reasonably standards economic crisis, all losses will be borne by the financial sector. In that case, there is no cost for the government. If, however, we are faced with a very exceptional economic crisis, the government will take on a part of the cost. Over the past ten years (including during the financial crisis of 2008-2009), the maximum loss was around 1%. Under the new guarantee scheme that has been agreed, the government vouches to intervene in the costs when the economic crisis is at least three times as severe as the financial crisis of 2008-2009.
The National Bank of Belgium, together with Febelfin, will set up a system to monitor the guarantee scheme as well as the sector's commitments.
“Last week, I called on the Belgian banks to redouble their efforts. I am grateful that they have agreed to play their role to the full and take on a far-reaching commitment to help our families and businesses in this difficult period,” concludes Finance Minister De Croo.
