Spain’s government outlined its burden-sharing scheme for banks as part of state-backed credit lines to help companies limit the impact of the coronavirus crisis, releasing an initial tranche of €20 billion.

The measures are part of a total of €100 billion in state-backed credit lines approved in late March, embedded in an unprecedented, wider €200-billion package.

«The government hopes that these measures will help companies to better weather the negative effects triggered by this health emergency, » government spokeswoman Maria Jesus Montero said.

With nearly 205,000 coronavirus cases and 21,300 deaths, Spain is Europe’s worst-hit country.

Banks have been awaiting the details of credit lines before starting to grant loans to businesses that have already started to temporarily lay off thousands of employees to withstand a near standstill in activity.

As part of the scheme, the state will guarantee around 80% of unpaid loans to self-employed workers and small and medium-sized companies, which represent the bulk of Spanish businesses. These two categories will receive half of the first tranche in credit lines.

The guarantees will cover new or renewed lending but not restructured loans, as had been demanded by lenders.

For bigger companies, the guarantees would cover 70% of potential losses from new loans and 60% of unpaid renewed credit lines. The guarantees would be for up to five years.

Montero said that interest price policy on loans had not been agreed with banks as «the biggest problem is not interest rates but sharing the risk».

In Germany, for example, the government is offering an unlimited volume in loans through the KfW bank that was founded to finance the country’s rebuilding after World War Two.

The loans are 80% guaranteed by the government for larger companies with more than 250 employees, and up to 90% for smaller companies.

European governments are scrambling to put together spending packages to mitigate the blow from the coronavirus pandemic, while the European Central Bank has promised emergency action to buy more than a trillion euros in bonds to support the economy and is offering loans for banks to pass on to small businesses.

Original Story: Reuters |Jesus Aguado and Emma Pinedo, Belen Carreño and Tom Sils 
Photo: Photo by Victor Iglesias from FreeImages
Edition: Prime Yield