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State guarantee schemes further strengthen package of economic measures to mitigate impacts of the COVID-19 pandemic

27 April 2020 – As part of on-going efforts to mitigate the economic impact of the COVID-19 pandemic in Serbia, the Serbian government has recently adopted adecree (the “Decree”)[1] establishing state guarantees for qualifying commercial bank loans.

Pursuant to the Decree, the Republic of Serbia acts as guarantor to banks for loans granted to eligible entities by the banks to maintain current liquidity and obtain current assets in order to mitigate the negative effects of the COVID-19 pandemic. State guaranteed loans cannot be used to refinance or prepay annuities of existing loans within the portfolio of one bank or to refinance loans granted by other banks.

The state guarantee will be issued to individual banks to secure a defined loan portfolio on the basis of an agreement between the National Bank of Serbia, the Serbian government and the bank in question. The maximum amount of the guarantee is EUR 480 million per secured bank portfolio. The state guarantee is a first demand, no protest, unconditional guarantee. Banks may approve loans in the total amount of EUR 2 billion, which may be guaranteed by the state guarantee under the current scheme.

The state guarantees are to be equally distributed among new loans and renewed loans. For new loans, the state guarantee may be issued in an amount that is not less than 50% of the total amount of the loan for which the guarantee scheme may be used. For loan renewals where obligations become due in the period between 29 February 2020 and 31 December 2020, not less than 50% of the total amount of loans under the guarantee scheme may be used.

The Decree sets out the criteria for a loan to qualify for the state guarantee, the eligible borrowers and the manner of allocation of the bank guarantees to the banks.

Main conditions for a loan to qualify for the state guarantee:

  1. disbursement by 31 January 2021 at the latest;
  2. repayment term 36 months, including 12-month grace period;
  3. currency either RSD or EUR and repayment in monthly instalments;
  4. interest rate not higher than 1M BELIBOR+2.5% for RSD loans or 3M EURIBOR+3% for EUR loans;
  5. collateral – at a minimum, a bill of exchange of the borrower and shareholder of the borrower holding 25% or more of ownership interest in the borrower; and
  6. the borrower will not pay dividends or repay shareholder loans within one year as of the date of disbursement of the loan;
  7. the maximum amount of an individual loan is the lower of the following two amounts: (i) 25% of the borrower’s income in 2019; or (ii) EUR 3 million; and
  8. the relevant loan agreement complying with the above terms must be concluded not later than 31 December 2020 and disbursed by 31 January 2021.

Eligible borrowers:

Under the Decree, eligible borrowers include farms; entrepreneurs; micro, small and medium enterprises as classified under Serbian accounting rules; and entities to which a bank has approved a new loan or the renewal of an existing loan for which the Republic of Serbia may act as the guarantor.

The guarantee schemes cannot be utilised by: entities that were in payment difficulties on 31 December 2019 or had unpaid obligations under the relevant regulations of the National Bank of Serbia on 29 February 2020; entities that have due and unpaid tax liabilities in Serbia; entities that are subject to consensual financial restructuring, insolvency, bankruptcy, reorganisation and liquidation proceedings; entities owned 50% or more by the state, municipality or autonomous unit; or borrowers who have been in payment default or borrowers that were subjects of restructuring measures by the banks measures pursuant to the classification of the National Bank of Serbia at any time during the 12 months preceding 29 February 2020. In addition, entities that are already recipients of a loan guaranteed by a state guarantee in Serbia may not receive another state-guaranteed loan.

Allocation of the funds of the guarantee scheme to banks:

  1. Up to 50% of the total amount of the loans to be guaranteed under the scheme (i.e., up to EUR 1 billion) will be allocated to the banks in proportion to their market share in the market segment comprising micro, small and medium enterprises and entrepreneurs on 29 February 2020 based on the official data of the National Bank of Serbia;
  2. Banks may apply for an increase of the maximum amount of the secured portfolio from the available guarantee scheme fund once it reaches 90% utilisation of the maximum amount of the secured portfolio, providing that each individual loan request is not lower than EUR 5,000 or higher than EUR 25 million.

For more information please contact Tijana Arsenijević, Senior Associate, at tijana.arsenijevic@zakmmlaw.rs.

[1] “Decree on Determining a Guarantee Scheme as a Measure of Support to the Economy for the Purpose of Mitigating the Consequences of Pandemic due to COVID-19 caused by the Virus SARS-CоV-2”