Financial first aid measures adopted in the Czech Republic in response to COVID-19

By Lubomir Brecka, Ivan Sagál

04-2020

In response to COVID-19 pandemic, various financial first aid measures were adopted in the Czech Republic including loan programs or pecuniary support. Other financial first aid measures shall follow in near future.

Actions proposed by industry leaders

Czech leading banks (e.g. Česká spořitelna, Československá obchodní banka, Raiffeisenbank and Komerční banka) offer their clients the option to request the deferral of mortgage loan, or loan instalments for up to three month.

Česká spořitelna also offers businesses the option of fast drawing bridging loans in cooperation with Českomoravská záruční a rozvojová banka (Czech-Moravian Guarantee and Development Bank).

Česká exportní banka (Czech Export Bank) in cooperation with Exportní garanční a pojišťovací společnost (Export Guarantee and Insurance Corporation) is now available to all exporters (regardless of their size), finance products and services at better conditions. The support of the export includes pre-export financing, financing a foreign buyer, purchase of receivables and bank guarantees.

Actions proposed by the government

COVID I Loan Program

The COVID I Loan Program provides support to small and medium-sized enterprises in the form of soft loans from CZK 500,000 (EUR 18,382) up to CZK 15 million (EUR 551,470) with zero interest rate. Loans are granted with up to 90% of eligible expenditure with a maturity of 2 years (with a possibility of deferred repayment for up to 12 months). The loan will be provided by Českomoravská záruční a rozvojová banka (Czech-Moravian Guarantee and Development Bank) up to the amount of CZK 5 billion (EUR 183 million). Currently, it is not possible to request a loan under the COVID I Loan Program as the funds in this programme will now be allocated to individual applicants.

COVID II Loan Program

Independent contractors and small and medium-sized enterprises may file applications for the support within the COVID II Loan Program. Pursuant to the COVID II Loan Program commercial banks will provide loans of CZK 10,000 (EUR 367) up to CZK 15 million (EUR 551,470) for operational financing, for which the state through Českomoravská záruční a rozvojová banka (Czech-Moravian Guarantee and Development Bank) will provide guarantees with a financial contribution for interest payments for the duration of up to 3 years. The provided guarantee will cover up to 80% of a commercial loan with the possibility to draw up a financial contribution of up to CZK 1 million (EUR 36,767) for interest payments. The state support through the COVID II Loan Program should allocate CZK 5 billion (EUR 183 million) and after collaboration with commercial banks, businesses should be able to utilise up to CZK 30 billion (EUR 1,1 billion) within this program. The first round of applications acceptance for the COVID II Loan Program was closed on 3 April 2020. The next round will be announced in accordance with the decision of the Ministry of Industry and Trade.More COVID loan/guarantee programs should follow, particularly focused on larger businesses.

Pecuniary support for independent contractors

On 7 April 2020, the Czech Chamber of Deputies has adopted the law under which specified independent contractors affected by coronavirus measures will be entitled based on their requests to CZK 500,00 (EUR 19) per each day of the so-called bonus period. The bonus period is currently from 12 March to 30 April 2020. The law to become effective must be now adopted by the Senate, signed by the president of the Czech Republic and published in the Collection of Laws.

Czech National Bank

The Czech National Bank repeatedly lowered all interest rates in reaction to the expected impact of the pandemic on the Czech economy: the two-week repo rate to 1%, the Lombard rate to 2% and the discount rate to 0.05%. The Czech National Bank also declared that it was prepared to lower interest rates further and adopt all necessary measures to address any potential liquidity problems in the Czech financial sector.

The Czech National Bank informed banks to refrain from paying any dividends or making other steps which could jeopardize their capital resilience.

According to the approved amendment to the Act on the Czech National Bank, the Czech National Bank can now trade instruments with maturity of more than one year. The Act also extended the group of persons the Czech National Bank can trade with.

Insolvency measures

The Chamber of Deputies is currently discussing the amendments to the Insolvency Act which should mitigate the impacts of the pandemic on businesses. The proposal should cover the adjustment of the deadlines or the conditions for the debt discharge (in Czech: oddlužení) and introduction of the emergency moratorium providing protection to debtors during the times the COVID measures are in place