State guarantee scheme as a measure to mitigate the consequences of COVID-19 on the economy

On 16 April 2020, the Government of the Republic of Serbia adopted a decree establishing a scheme for the issuance of unconditional, on-demand state guarantees to banks for working capital loans to Serbian corporates. The total guaranteed amount is EUR 480 million, while the total value of the COVID-19-related loans to be guaranteed by the scheme is up to EUR 2 billion. Coverage for up to half of that amount will be allocated to the banks proportionally to their market shares on the SME corporate loan market as of 29 February 2020, as per official data of the National Bank of Serbia. After the individual bank uses up 90% of its covered portfolio, it may apply for the increase of the portfolio within the scheme.

Serbia, its National Bank and the individual bank participating in the scheme will enter into separate guarantee agreement, at which point it will be deemed that the guarantee for the entire bank’s portfolio qualifying for the scheme is issued. The individual guarantee to each bank will cover 80% of the bank’s portfolio that qualifies for the scheme and 30% of individual loan. The coverage is proportionally reduced as the loan is being repaid.

State guarantee scheme does not apply to refinancing loans, but can be used to replace the existing loans granted by the same bank prior to the date of its individual guarantee agreement with the state pursuant to the guarantee scheme, and which mature after the guarantee agreement but not later than on 31 December 2020. Such replacement loans cannot form more than half of total portfolio covered by the scheme.

The maximum amount of the individual loan that qualifies for the coverage is the lower of (i) 25% of the borrower’s 2019 income and (ii) EUR 3 million. In order to qualify for the state guarantee, the loan agreement must be concluded by the end of 2020 and the loan disbursement cannot be later than 30 days from the loan approval (6 months from the approval of the qualifying refinancing loan), and in any event not later than on 31 January 2021. The tenure of the loan cannot be longer than 36 months from the disbursement, including a nine to twelve-month long grace period. During the grace period, the borrower participating in the scheme may not prepay any other working capital loan granted outside the scheme. The interest rate on the guaranteed loan denominated in RSD is capped at 1M BELIBOR + 2.5%, and on the loan denominated in EUR at 3M EURIBOR + 3.0%.

Qualified borrowers are the following commercial entities established in Serbia: agricultural farms; solo entrepreneurs; and micro, small or medium-sized enterprises. Entities that have outstanding tax obligation in Serbia or are subject to consensual financial restructuring, any procedure under insolvency legislation or compulsory liquidation procedure do not qualify. The scheme is also not available to borrowers who have been in payment default or under a reprogram pursuant to the classification of the National Bank of Serbia at any time during 12 months preceding 29 February 2020, nor to the entities in which the state or a local municipality owns more than 50% of capital. Finally, the borrowers having loans already covered by state guarantee under another scheme do not qualify for this COVID-19-related scheme.

The guaranteed loans are unsecured (the borrower or its shareholder holding at least 25% of the borrower’s capital must only provide bills of exchange).

The borrowers wishing to participate in the scheme will not be allowed to pay out dividends to shareholders for a period of one year following the conclusion of the loan agreement with the bank.