Agreement on guarantee of credit institutions’ supplemental loans to businesses

The Ministry of Finance and Economic Affairs and the Central Bank of Iceland have signed an agreement laying down terms and conditions for Treasury guarantees of credit institutions’ supplemental lending to businesses in response to the COVID-19 pandemic.

Because of the pandemic, many companies are facing temporary but severe declines in revenues, as well as liquidity problems. In view of this, Parliament authorised the Minister of Finance and Economic Affairs to grant Treasury guarantees covering a portion of supplemental loans provided to companies by credit institutions, subject to specified conditions. The Minister was authorised to negotiate an agreement with the Central Bank concerning the implementation of the guarantee scheme.

The aim of the scheme is to support companies that are severely affected by the spread of COVID-19 and the Government measures taken in response to it. The guarantees are an element in maintaining the highest employment level and the most diverse economy possible.

Each credit institution can access to a specific portion of the total guarantee amount. The supplemental loans must be granted before the end of 2020, and the maximum term is 18 months from the date of issuance. The guarantee on any individual supplemental loan will be capped at 70%. The amount loaned to any individual entity is subject to a maximum of two times the entity’s year-2019 wage costs. Furthermore, the company’s wage costs must constitute at least 25% of its total operating expenses for 2019. Moreover, the maximum amount of any single guaranteed loan is 1.2 b.kr.

The design of the scheme should be finalised shortly, after further refinements between the Central Bank and the credit institutions. When this is complete, credit institutions will be able to begin granting Treasury-guaranteed loans.