On Thursday 27 January 2022, the Luxembourg State Treasury released its first report on the application of the State Guaranteed COVID Loans Scheme; 415 such loans have been granted to date, amounting to €194 million.
This scheme was announced on 25 March 2020 as part of the economic stabilisation programme and established by the law of 18 April 2020, to support Luxembourg companies to overcome the health crisis and prepare for recovery. This unprecedented offer has usefully supplemented the products put in place by the National Credit and Investment Company (Société nationale de crédit et d'investissement - SNCI), the Office du Ducroire and the European Investment Bank (EIB).
The State guarantees 85% of the nominal amount of bank loans granted to companies and this up to €2.5 billion. Under this scheme, participating banks had the possibility to grant guaranteed loans to companies affected by the crisis up to a maximum of €2.94 billion (85% x 2.94 = €2.5 billion).
Initially scheduled until 31 December 2020, the plan has been extended by six months twice. The amended law of 18 April 2020 aimed at setting up a guarantee scheme for the Luxembourg economy in the context of the COVID-19 pandemic took effect on 1 June 2021. Thus the State was able to grant a guarantee on loans granted by credit institutions between 18 March 2020 and 31 December 2021.
Eight banks − BCEE, BIL, Banque de Luxembourg, Banque Raiffeisen, BGL BNP Paribas, ING, Bank of China and Banque BCP − participated in the programme. These same banks have also granted moratoriums with a cumulative value of approximately €4.5 billion to companies affected by the crisis.
Since its implementation, the guaranteed loans scheme has been strongly requested by Luxembourg companies affected by the pandemic. Thus, during the first three months of its implementation, 222 loans were granted, for a total amount of €95.6 million. Until 31 December 2021, the end date of the subscription period, 415 loans have been granted, for a total amount of €194 million.
In terms of number of loans by sector, it is the trade sector which benefited the most from guaranteed loans (26.75%), followed by the accommodation and catering sector (19.04%) and construction (18.07%). Beneficiary companies have up to six years to repay the loans.
As of 31 December 2021, out of the total 415 loans granted, the State Treasury identified a total of nineteen loans which were categorised as “defaulted” loans. This corresponds to a total amount (nominal loan amounts) of €13,815,750. However, it is to be noted that the notion of "loan in default" does not necessarily mean that bankruptcy proceedings have been initiated and that the State may have to bear all or part of the amount of the loan granted.
The nineteen loans in default represent 4.58% of the total number of loans granted (415). In terms of the total amount of loans granted, this amounts to 7.12%. At this stage, two cases of real payment defaults have been communicated to the State Treasury. According to the provisions of articles 7 of the agreement between the banks and the Luxembourg State, the call for guarantee cannot be invoked once the amicable and possibly legal remedies have been exercised by the bank. The State will then bear 85% of the losses incurred by the bank on the loan in question.
With the recovery taking shape, the number of requests has gradually decreased, thus underlining the resilience of Luxembourg's economic sector in the face of the pandemic. Only about ten loans were concluded in the last quarter of 2021. However, it should noted that beyond the COVID loans guaranteed by the State, the banks also granted, in the context of the crisis, more than 500 loans without state guarantee, for a cumulative amount exceeding €300 million.
Finance Minister Yuriko Backes said: "I would like to thank the eight banks and the ABBL, which have shown solidarity and taken their responsibilities in the face of the health crisis, by participating in the loan programme guaranteed by the State. At a time when the economic outlook was the darkest, this programme tangibly contributed to enable eligible companies to continue to invest and look forward to emerging from the crisis with confidence”.