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421.9001

insight

Sincere dialogue among Mr Li, Mr Wong and Mr Ho on SME Financing Guarantee Scheme

(Translation)

Time:

A Saturday morning in early January 2017

People:

Mr Li - Raymond Li, Chief Executive Officer, The Hong Kong Mortgage Corporation Limited (HKMC)

Mr Wong - owner of a small and medium-sized enterprise (SME) and committee member of an SME association

Mr Ho - Head of Corporate Banking Department of a major bank

Place:

On a Zhongshan Port-bound ferry from Hong Kong

 

Ho:

Mr Wong, what a coincidence to see you here! Go golfing in Zhongshan over the weekend?

Wong:

Yes, finally have a chance to take a break. The market was so volatile last year that I barely had a chance to take my eyes off the business.

Ho:

How was the business going last year? Anything my bank can help in terms of financing?

Wong:

Thanks in advance, but there is no need to trouble you at the moment. The credit line offered by your bank remains good. The external economic environment was very volatile last year, driven by Brexit and the victory of Donald Trump in the US. The currency market was in turmoil. For those of us in re-exporting business, we have to be on high alert. Maintaining the existing business in good shape has been quite challenging, not to mention seeking expansion. By the way, have banks been holding back on extending credits to SMEs, as I have heard?

Ho:

That hasn’t been the case with my bank, neither was that a common phenomenon as I have heard from my peers at other banks. However, as you have mentioned, we did have paid closer attention to the risks facing our clients amidst the turbulent market conditions.

Wong:

Any tips for SMEs on obtaining bank credits? Heard that it is difficult for start-ups or those with weak financials to get credits?

Ho:

The key is to fulfil the basic requirements. Being able to provide comprehensive and quality supporting financial and business information would be most helpful to the application. We endeavour to maintain a long-term relationship with our clients, and would not withdraw our support when clients come under temporary financial stresses due to economic cycles. Clients may also consider making use of the financing assistance schemes offered by the Government. Have you ever heard of the SFGS, that is, the SME Financing Guarantee Scheme?

Wong:

Yes. I recall that the HKMC representatives had a briefing to the committee members of my association not long ago. I also received relevant information from the HKMC through the association. The scheme sounds very attractive. SMEs can borrow up to $12 million, no collateral is required and the interest rate inclusive of guarantee fee is just slightly above 5%. However, I’ve heard from other SME owners that some banks were not keen on offering the scheme, although the Government would shoulder 80% of the risk. How strange!

Ho:

I heard that some banks were hesitated to offer the SFGS to clients for fear of a slim chance of successful claim. HKMC representatives have recently visited major banks, explaining to them the relevant claim principles and procedures. My colleagues in the collection department said that HKMC’s briefing had greatly enhanced their understanding, and they had been able to render more effective support to the HKMC to speed up claim processing. Indeed, I am aware that some banks have become more active in approaching SME clients and offering the scheme.

Wong:

Is it difficult to apply for the SFGS? Are the eligibility criteria very stringent?

Ho:

Not really. Companies with over a year’s operating history and good repayment records are eligible to apply. Supporting documents required include usual shareholders information and those commonly needed for company registration. The HKMC would normally provide feedback in a few days.

(At that time, Mr Ho noted that Mr Li was sitting at the back)

Ho:

Mr Li, it’s good to have you here. Mr Wong and I are talking about the SFGS of your company. Perhaps you can update us on the latest developments? Mr Wong, this is Mr Li, the CEO of the HKMC.

Li:

Mr Ho, may I first thank you for helping my company promote the SFGS to Mr Wong. In fact, many banks have recently stepped up effort to promote the scheme to clients. In the past, demand for the SFGS tended to ease after the middle of the year, but the number picked up slightly in the third and fourth quarter last year, and those banks that have been more proactive saw a significant growth. We hope the trend can continue into the new year. That said, I think we all understand that the actual number would be affected by the macroeconomic environment.

Wong:

Mr Li, it seems that the HKMC has put a lot of effort in promoting the SFGS. Guess it must have been making a good fortune out of it?

Li:

Quite the contrary, not even a single cent! All guarantee fees collected under the scheme belong to the Government and are for paying off claims of banks. We are assisting the Government to operate the scheme, with an objective of helping as many SMEs as possible.

Wong:

What other things can the HKMC do to support the SMEs? Any chance to cut the guarantee fee or raise the coverage level?

Li:

Since the scheme is sponsored by the Government, it is not up to the HKMC to decide on the level of guarantee fee and coverage. As I see it, the level of fee is in fact very low, just at about 20% to 30% of the normal level. For a million dollar loan at 6% interest rate, the monthly guarantee fee would amount to just a few hundred dollars, which is around the usual cost of a dim-sum meal. The HKMC endeavours to ensure a smooth operation of the scheme, to foster strong confidence among banks in the certainty and efficiency of claims, so that they will be more comfortable and ready to make use of the scheme to support more SMEs. As Mr Ho has just mentioned, we have met up with many banks in recent months, explaining to them the claim handling principles and procedures. The effort turns out to be highly helpful in removing misunderstandings. As the banks have become more active in facilitating our claim procedures, the number of completed claim cases has increased significantly in the past few months. Meanwhile, we have further enhanced the claim handling procedures in response to the comments received.

Ho:

Mr Li, you have my assurance that my bank will continue to actively support the use of the SFGS.

Li:

There remains abundant headroom under the scheme, which can support further lending of up to around $80 billion. I strongly encourage banks to make more active use of it.

Wong:

The scheme looks really helpful! I will certainly recommend it to other SME owners.

Li:

Thank you!

 

Key developments and statistics on the SME Financing Guarantee Scheme:

  • The HKMC actively promoted the SFGS to the market last year, including meeting with industry representatives and management of banks, and briefing front-line staff of banks on the operation of the scheme
  • According to past experience, the number of applications of the SFGS would tend to drop after the middle of the year, but the number picked up in the third and fourth quarters of 2016, with significant growth being recorded by banks that have enhanced their focus on SME business
  • With the active support of banks, the HKMC completed a total of 94 claim cases in 2016 (73 of which were completed in the last two quarters), representing an increase of 52% from 62 cases in 2015
  • The HKMC has further enhanced the claim handling procedures, which include reducing the information required and allowing banks to upload supporting documents in advance to enhance claim processing efficiency. It also advances the timing of the notification of claim decision to banks

 

The Hong Kong Mortgage Corporation Limited
23 January 2017

Last revision date: 23 January 2017
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