COVID-19 Credits: Revised Guidelines of the Swiss Bankers’ Association on the Internal Handling of COVID-19 Credits

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As an immediate response to liquidity shortages caused by the pandemic, the Federal Council had adopted on 25 March 2020 an emergency ordinance allowing SMEs to apply for and obtain so-called COVID-19 credits in a speedy, non-bureaucratic procedure until 31 July 2020. Given its extraordinary nature, the ordinance stayed in force until 25 September 2020. In order to address all aspects of the COVID-19 credits over their entire lifespan/term, there was a need to legislate and incorporate the main procedural provisions of the former emergency ordinance into a formal federal act: the Federal Act on COVID-19 Credits with Joint and Several Guarantee (the “COVID-19 Credit Act”) entered into force on 19 December 2020.

As a result of the COVID-19 Credit Act the Swiss Bankers’ Association (“SBA”) has published on 12 February 2021 updated guidelines on the internal handling of COVID-19 credits by the banks, in particular relating to the extension of the repayment term from five to eight years passed by the Parliament in December 2020. The SBA thus reviewed its guidelines and adjusted its recommendation to the members in two major ways. It is now recommended:

  • to automatically extend the term of the COVID-19 credits from five to eight years, subject to prior information of the clients which aims at reducing the administrative burden of the SBA’s member banks. This does, however, not apply to COVID-19 plus credits, i.e. credits over CHF 500,000.-, for which banks performed an individual credit check and entered into a separate (non-standard) credit agreement. In the latter case, the extension in accordance with art. 3 of the COVID-19 Credit Act is to be granted to the client solely upon request. According the SBA, the difference in treatment, i.e. the automatic extension of the term versus extension upon request approach, stems from the in-depth credit checks performed before granting a COVID-19 plus credit. Moreover, and contrary to the extension of COVID-19 credits, the recognised guarantee organisation is required to give their approval to extend the term of a COVID-19 plus credit to eight years.
  • to require amortisation down-payments of the COVID-19 credits i.e., loans of up to CHF 500,000.-, mandatorily as of end of March 2022 and not as initially provided as of the beginning of 2021. The suspension of the obligation to repay the credit for another year gives companies still affected by the liquidity shortages caused by the pandemic much-needed additional flexibility but does only apply to COVID-19 credits. With respect to COVID-19 plus credits though, the terms and conditions as agreed upon between the parties, i.e. the bank, the guarantee organisation and the borrower, shall continue to apply irrespective of the suspension of the amortisation schedule for COVID-19 credits.

Finally, as confirmed by art. 4 para. 1 of the COVID-19 Credit Act, COVID-19 credit borrowers are to look out for the decision of the Federal Council who may introduce interest payments as early as of 31 March 2021. We do not believe, however, based on the economic situation at the time of writing, that the current interest rates of the COVID-19 credits, 0% for credits below CHF 500,000.- and 0.5% for credits from CHF 500,000.- up to CHF 20,000,000.-, are likely to be raised at the end of March this year.

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