Czech Republic: Coronavirus - Liquidity concerns
While regulators and bank associations across CEE have introduced or are suggesting hard legal moratoriums on loans allowing for payment deferment without triggering default provisions as a means of mitigating potential adverse economic consequences of the coronavirus situation, the Czech government has yet to adopt loan moratoriums above and beyond a previously communicated soft recommendation to waive payment obligations for the next three months. Nevertheless, some aid for impacted corporate debtors facing liquidity issues is available on the market and is briefly summarized below.
1. Loan Moratoriums
Although no legally mandated loan moratorium currently exists, major Czech banks have in general taken a proactive approach in voluntarily (but not automatically) offering a three-month loan moratorium on personal and selected commercial loans as well as mortgages. This is in line with recommendations from the Czech Banking Association, a professional platform grouping the vast majority of Czech banks. Each bank is logically approaching the situation individually, with for example the local Erste entity setting up a specific website aimed at distressed borrowers. In a recent statement, the Czech Banking Association has called on borrowers to be patient as the individual banks set up procedures and policies implementing the three-month moratorium, communicate same with the regulator (the Czech National Bank) and also explore whether (and if so to what extent) borrowers availing themselves of the waiver would be classified as non-performing debtors in the various national NPL registers. Further developments and details are expected in the upcoming days.
2. Special Funding Projects
Several heavily subsidized/supported lending schemes targeted at sectors most impacted by the crisis are being discussed. In the past weeks, the COVID I programme was established by the Czech-Moravian Guarantee and Development Bank, pursuant to which private entrepreneurs and SMEs could receive zero-interest emergency financing up to CZK 15 mil. (approx. EUR 550,000). After approx. 3,600 individual applications had been submitted, this programme was put on hold while the applications are processed. However, a new phase of the programme, COVID II, is currently being set up – this would in essence be a joint venture between the state (offering guarantees through the Czech-Moravian Guarantee and Development Bank) and the majority of the major retail banks as lenders. The state guarantee could cover up to 80 % of the loan principal and the state would further assume up to CZK 1 mil. (approx. EUR 37,000) in interest fees. Details and roll-out are currently expected in the upcoming 10-14 days.
3. Macroeconomic Measures
Although not qualifying as direct liquidity support, several measures either already implemented or in advanced stages of preparation will have the effect of freeing up liquidity for impacted businesses. A form of „kurtzarbeit“ measure has been approved and results in the government temporarily subsidizing 50 – 80 % of wage costs especially for companies in certain adversely impacted sectors (where lack of employees due to quarantines, lack of supplies, decreased sales etc. are most prevalent). In addition, several tax filing deadlines have been significantly extended and income tax deposits payable in June have been deferred. The support of small individual entrepreneurs includes waiver of social security and health insurance payments for the next six months as well as a monthly emergency pension of CZK 15,000 (approx. EUR 560) for those entrepreneurs who had to close shop on account of the public health measures.
In closing, companies facing liquidity issues can currently avail themselves of a combination of measures, beginning with non-obligatory loan moratoriums (if available), special state-guarantee financing as well as certain broad macroeconomic remedial measures. A possible narrowly-drawn moratorium on insolvency proceedings is currently in the earliest stages of discussion. Hopefully, the whole of the above measures will add up to more than the sum of their parts in at least partially mitigating the worst economic fall-out of this unprecedented situation.