Measures adopted by the Czech National Bank (the “CNB”)
The CNB expects that as a result of the coronavirus disease and related measures, there will be a severe recession in which the Czech economy will remain for the rest of this year. The CNB lowered the two-week repo rate to 0.25%. At the same time, it lowered the Lombard rate to 1.00%. The discount rate remained unchanged at 0.05%. The change in rates took effect on 7 May 2020.
The CNB has decreased the countercyclical capital buffer rate for exposures located in the Czech Republic to 1.00% as of 1 April 2020.
“COVID II” and “COVID Praha” and COVID III measures
The Czech Ministry of Industry and Trade (the “MIT”) has prepared the "COVID II" Loan measure (“COVID II”) together with the Czech-Moravian Guarantee and Development Bank (the “CMZRB”). It introduces aid for self-employed, small- and medium-sized entrepreneurs affected by measures against the spread of Coronavirus.
Under the COVID II, the CMZRB will provide entrepreneurs with guarantees for operating loans from commercial banks with a minimum limit of CZK 10,000. In addition, the guarantees shall be provided together with the financial contribution for payment of the interest.
The foreseeable scenario is that the CMZRB will guarantee loans from CZK 10,000 up to CZK 15,000,000 and such guarantee will cover up to 80% of the commercial loan to each individual borrower complying with eligibility conditions to the rogramme. Further, the applicant will be able to draw a financial contribution of up to CZK 1,000,000 for payment of the interest. The expected duration of the guarantee shall be 3 years. Such guaranteed commercial loan shall only be used to cover operating expenses such as wages, rent, energy, supplier-customer invoices, material, inventory, etc.
The first round of COVID II has been already carried out and applications received are currently under review. As COVID II is financed from EU structural funds, it is not intended for the implementation of projects in Prague.
A similar programme called the COVID Praha Measure (“COVID Praha”), designed for self-employed, small- and medium-sized entrepreneurs active in Prague, has been already carried out as well and the received applications are currently under review.
CMZRB is preparing a follow-up COVID III measure, which will be announced approximately in mid-May. The loans will be provided by cooperating commercial banks and CMZRB will issue the guarantees for them. The programme will be intended for self-employed persons and entrepreneurs employing up to 500 employees. More information will be published in the coming days.
COVID plus Measure
The Ministry of Finance (“MIF”), in cooperation with the MIT and the Export Guarantee and Insurance Corporation (“EGAP”), has prepared a programme (the “COVID plus”) to provide a system of guarantees for repayment of loans by exporters and producers:
- EGAP will now also provide guarantees for operating, working capital or investment loans
- the aim is to strengthen the liquidity of export-oriented entrepreneurs
- the share of exported goods and services in total sales of goods and services must be at least one fifth (1/5) made by the exporter in 2019
- the guarantee will be valid for a maximum of three (3) years for working capital loans and a maximum of five (5) years for investment loans
- the maximum loan limit is 25% of the total annual revenues from the sale of goods and services for 2019
- the minimum amount of the guaranteed loan starts at CZK 5 million
- EGAP will cover the principal of the loan up to 80%, so the minimum participation of the bank will be 20%.
In addition to guarantees provided directly by EGAP, EGAP will insure both direct and indirect guarantees. The measure aims to support and maintain the business of companies with 250 or more employees.
For this purpose, the MIF has already increased the insurance capacity of EGAP to CZK 330 billion as part of the approved amendment to the State Budget Act for 2020. The programme is currently running and the provision of guarantees with EGAP is handled by the lending bank (i.e. not by the company) via an online form.
EGAP continues to provide assistance to all exporters with traditional export credit insurance instruments, while reducing waiting time and handling requests for new insurance as a matter of priority.
The new legislation introducing suspension of loan repayments is effective as of 17 April 2020. The measures have been implemented by the Act on Certain Measures regarding the Repayment of Loans during the COVID-19 pandemic and an amendment to the Act on Consumer Loans (together the “New Legislation”).
The New Legislation applies to banks and financial institutions as well as non-banking loan providers, including consumer loan providers. It also applies to entities that acquired receivables from a provided loan.
The suspension of payments applies primarily to repayments of the principal. The moratorium is available for both commercial and consumer loans granted and utilised before 26 March 2020, although certain exceptions apply to loans secured by a mortgage and loans for housing purposes which do not need to be utilised before 26 March 2020. For other exclusions from the suspension’s applicability, please see section 6 below.
Interest remains payable during the moratorium. For business loans, the interest rate remains the same as agreed in the loan agreement. For consumer loans, the interest rate corresponds to the repo rate announced by the Czech National Bank increased by 8%, unless a lower interest rate is agreed in the loan agreement. Other fees and payments are not suspended, unless the borrower is an individual.
According to the New Legislation, the suspension only applies if the borrower chooses to opt in by sending a notice to the lender (the “Notice”) in which it states that it chooses to be protected by the suspension of loan repayments (moratorium) due to the negative economic impact of the COVID-19 pandemic and must choose whether the moratorium will apply to it until 31 July 2019 or 31 October 2020. The moratorium will then be effective from the first day of the month following the month in which the Notice is delivered to the lender. During the moratorium, borrowers would not be obliged to pay any instalments on the principal of the loans and the principal repayment dates and thus the maturity of the loan will be postponed.
Non-payment of rent
As of 27 April 2020, the Act No. 210/2020 Coll., on Certain Measures to Mitigate the Impacts of the SARS CoV-2 Coronavirus Epidemic on Tenants of Business Premises is effective. The act prohibits termination of lease agreements by landlords due to non-payment of rent in a selected time period determined by the COVID-19 outbreak, with the obligation of tenants to repay the rent in the future. Please find below the key terms:
- until 31 December 2020 the landlord cannot unilaterally terminate a lease for non-payment of rent that occurred between 12 March 2020 and 30 June 2020
- non-payment has to be caused by restrictions resulting from extraordinary measures related to the epidemic situation that prohibited or substantially hindered the tenant’s business
- the tenant needs to present the landlord with documents evidencing the cause of the delay within 15 days after the first delay of tenant’s payment
- if the tenant does not repay all debts by 31 December 2020 the landlord may terminate the lease with five (5) days’ notice. The landlord may also terminate the lease with five (5) days’ notice if the tenant declares that the tenant will not be able to repay the outstanding debts on rent by 31 December 2020, and
- the landlord may also terminate the lease after the prohibition or hindrance of the tenant’s business ceases to exist, however, not before the state of emergency is lifted, if it cannot be fairly demanded from the landlord to remain in the lease relationship.
The MIT is working on the subsidy programme called COVID-Rent intended for entrepreneurs affected by restrictive preventive measures of the Government, to the payment of rents for establishments. The COVID-Rent subsidy programme envisages that the state would pay tenants half of their total rent for the period from April to June 2020 in the form of a subsidy. The amount of support would be limited to a maximum of CZK 20 million. The condition is that the tenant provides a confirmation from the landlord in the form of an amendment to the lease agreement that he has provided the tenant with a discount of 30% of the rent. The tenant himself would therefore pay only 20% of his rent. More information shall be published in the coming days.