11 May, 2020
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Government passes Decree establishing a Guarantee Scheme – What can Serbian business owners expect?

On April 10, 2020, the Serbian government announced economic policy measures to reduce the impact of the pandemic on the Serbian economy. These measures include financial support to businesses, inter alia, through loans on favorable terms and financing of minimum wages.

The list of measures announced on April 10 is not conclusive. Namely, another regulation is the Decree establishing a guarantee scheme as an economic support measure to mitigate the consequences of the COVID-19 disease caused by virus SARS-CoV-2 (“Decree“). According to the Minister of Finance, this Decree is the cornerstone of the entire economic program of the Serbian Government and is valued at EUR 2 billion.

 

What does the Decree prescribe?

The Decree regulates, in the first place, a guarantee scheme, which covers a set of individual guarantees given by the Republic of Serbia, which are payable on the first call, unconditional, and which are issued in favor of banks in order to secure banks’ loan portfolios. The Decree stipulates that an individual guarantee will be issued for the portfolio of each individual bank, which must contain loans that qualify for guarantees under the Decree.

Therefore, by issuing guarantees, the state undertakes to settle the claims of banks stemming from loans for financing liquidity and working capital where the borrower defaults.

 

What is the maximum amount of credit?

The Decree stipulates that the maximum loan amount is equal to the lower amount of one-quarter of the income generated by the borrower in 2019 or EUR 3 million for euro-denominated loans, or EUR 3 million converted at the mid-market exchange rate of the National Bank of Serbia valid at the date of the loan agreement.

 

Whо is eligible for government-backed loans?

Government-backed loans may be given to entrepreneurs, micro, small and medium-sized companies (registered with the Agency for Business Registers) whose headquarters are in the Republic of Serbia and which meet the conditions prescribed by the bank’s lending policy for disbursement of a new loan or a renewal of an existing loan in the same bank. The list of eligible borrowers includes agricultural holdings.

Additionally, the Decree also sets down a list of disqualifying conditions for government-backed loans. In this sense, large companies, companies in which the state, autonomous province or local self-government has a shareholding of more than 50%, persons who have arrears of taxes, companies which are in process of pre-arranged financial restructuring, companies which are already borrowers under the government-backed loan scheme, as well as companies which are in financial difficulty, in default, or whose loans have been restructured 12 months before 29th February 2020 under National Bank of Serbia regulations.

 

What is the purpose of the loan?

The Decree stipulates that the state can only guarantee loans for financing liquidity and working capital as well as the renewal of loans that mature before the end of 2020. On the contrary, loans for refinancing and early repayment of outstanding installments of existing loans cannot be secured via the guarantee scheme.

 

Under what conditions can a loan be backed under the guarantee scheme?

The Decree details the conditions a loan must satisfy in order to be backed by a guarantee. The terms and conditions relate to loan disbursement, the repayment period, currency, and other parameters.

Under the Decree, the loan agreement must be concluded by December 31, 2020, and the loan itself must be disbursed by January 31, 2021. The repayment period must not exceed 36 months from the loan disbursement date. The grace period, ranging from 9 to 12 months, is also calculated into the repayment period.

Secondly, only dinar and euro-denominated loans can be backed. The Decree also sets down interest rate conditions – determined by the bank and in line with its lending policy, for an amount not exceeding the one-month BELIBOR rate plus 2.50% for dinar-denominated loans, and not exceeding the three-month EURIBOR rate increased by 3.00% for euro-denominated loans.

The third set of conditions concern borrower payments. In that regard, the borrower will not pay dividends or repay the loan to the shareholder during the first year after conclusion of the loan agreement. Also, during the grace period, the borrower will not repay early existing loans with the same purpose disbursed by other banks.

Finally, the borrower and its majority owner must provide bills of exchange. The Decree stipulates that majority ownership implies direct ownership, which is equal to or greater than 25% of capital.

 

 

For more information you can contact us via covid19@geciclaw.com.