Government considering to give banks €2b in state guarantees to unlock credit

The Cyprus government is considering a plan to provide state guarantees to banks amounting to €2 billion, in a bid to unlock credit to self-employed, small and medium-sized enterprises and large corporations hit by the coronavirus epidemic.

The plan, which will be put into consultation with the Cypriot banks provides for the granting of government guarantees to SMEs and self-employed persons amounting to €1.7 billion and €0.3 billion for large corporations.

The aim of the plan, according to a draft secured by the Cyprus News Agency, “is to provide state government guarantees with a total amount of up to €2 billion to Cypriot licensed banking institutions, including subsidiaries of foreign credit institutions with the purpose to provide loans to companies and self-employed persons [to help them] deal with the consequences of the measures to combat the coronavirus epidemic.”

The plan aims to cover the credit risk encouraging the bank to provide cheap new loans from April 2 until the end of the year, and to cover the credit risk of current loans of self-employed persons, SMEs and large corporations which have been hit by the coronavirus epidemic.

Furthermore, the plan also covers the issuance of current accounts and overdrafts that may not exceed 50% of amount offered to a self-employed person, 25% of the amount provided to an SME and 15% to large corporations.

“The provision of loans aims to cover the companies’ and self-employed persons’ liquidity needs, working capital and investments,” the draft reads.

However, the draft makes clear that self-employed persons or corporations that had non-performing loans at the end of 2019 will not be eligible for the plan.

As far as the limit of loans is concerned, the draft notes that a loan cannot exceed an amount that is double of a company’s or a self-employed person’s total annual income in 2019 or the latest available year.

According to the draft, in some justified cases and based on liquidity plans, loans can be increased to cover the liquidity needs for the next 18 months for self-employed persons or an SME and the next 12 months when it comes to large corporations.

According to the draft, the plan will be put into force on April 2 until the end of the year.