Pursuant to an agreement between the Belgian Federal State, the National Bank of Belgium and the financial sector (represented by Febelfin), Belgian financial institutions have undertaken to grant payment deferrals to those experiencing coronavirus-related repayment problems. To support this, the Belgian Federal State will grant the banking sector a guarantee for a maximum of €50 billion to cover any losses on new loans issued by the banks concerned.
The precise details will be announced shortly in a specific decree, and we understand that the plan will only apply to Belgian financial institutions (i.e. not foreign banks that have issued loans to Belgian borrowers). At this stage, it is unclear whether all financial institutions will be automatically bound by the plan (which is our expectation) or will be invited to opt in.
As regards payment deferrals, eligible borrowers for this exceptional measure are:
- consumers with a mortgage credit (not consumer credit, nor a private lease); and
- (non-financial) enterprises and the self-employed.
Such deferrals would include both principal and interest and would be granted at no cost until 30 September 2020, provided that the eligible borrowers meet the following conditions:
- they demonstrate that they can’t meet the deadlines due to the coronavirus crisis; and
- they are not in arrears as of 1 February 2020, or, as of 29 February, are less than 30 days overdue and not in the process of active credit restructuring.
It means that payment deferrals will not be automatically granted, that borrowers will need to apply for such deferrals and that financial institutions may conduct a case-by-case assessment. Febelfin will issue eligibility guidelines.
Regarding the guarantee scheme, the Belgian State's guarantee will cover all new loans and credit lines (except refinancing loans) with a maximum duration of 12 months that banks grant to viable non-financial companies and self-employed persons until 30 September 2020. The State guarantee involves distributing losses between the financial sector and the State, as follows:
- the first 3% of losses will be borne entirely by the financial sector;
- for losses between 3% and 5%, 50% of the losses will be borne by the financial sector and 50% by the government; and
- for losses above 5%, 80% of the losses will be borne by the government and 20% by the financial sector.
Finally, to ensure the effectiveness of the Belgian banks' commitment, the National Bank of Belgium and Febelfin will monitor the proper implementation of the deferral scheme. If the banks fail to meet their commitments, sanctions will be imposed on them.
Benoît Vandervelde Partner, Brussels
Florence Berchem, Junior Associate, Brussels
