100% Personal Loan Guarantee Scheme

1. When Hong Kong faced the COVID-19 epidemic in the past few years, the HKSAR Government rolled out many measures to provide timely assistance to businesses and individuals.  The Hong Kong Mortgage Corporation Limited and its subsidiaries have been actively supporting government initiatives, including launching the 100% Personal Loan Guarantee Scheme (“PLGS”) in end-April 2021 to provide a supplementary financing option to individuals who suffered from cessation of main recurrent incomes from employment during the epidemic.  In view of the epidemic’s impact on various sectors and the labour market, the PLGS was enhanced in 2022 with a higher maximum loan amount, longer maximum repayment period, and extended principal moratorium arrangement.  With the Hong Kong economy recovering steadily and the unemployment rate trending down as the epidemic subsided from the beginning of this year, the application period of the PLGS expired at the end of April.  Under the PLGS, a total loan amount of HK$4.66 billion has been approved, benefiting more than 59,000 borrowers.  The average loan size per borrower is about HK$78,500. Approximately one third of the borrowers earned HK$12,000 or less a month before they lost their main recurrent incomes.  It can be seen that the PLGS has helped many low-income individuals overcome temporary difficulties.
2. In fact, PLGS loans have been granted on concessionary terms including a long repayment period of up to 10 years, a nominal interest rate of 1% per annum (after the borrower repays the entire loan and interest within the repayment period, the borrower will receive a refund of all interest paid), and principal moratorium period of up to 18 months. Taking a HK$78,500 loan with repayment period of 10 years as an example, the monthly repayment amount is only slightly over HK$60 during the principal moratorium period, and about HK$800 thereafter.  The improvement in labour market conditions after the epidemic is believed to be helpful to borrowers in meeting their payment obligations.
3. The PLGS is a relief measure for extraordinary times. Its application vetting procedures have been designed to achieve a reasonable balance between simplicity and speediness on the one hand, and abuse prevention on the other.  The scheme’s control and safeguard mechanism includes measures such as customer due diligence and borrowers’ eligibility verification by the lending institutions, reporting of the borrowers’ repayment records to personal credit reference agencies, and appropriate checks on applications by HKMC Insurance Limited which is the scheme administrator.  Considering that the loan applicants were unemployed and not required to go through credit assessment, the PLGS was launched with an overall assumed default rate of 25%.  Over the course of more than two years, the actual cumulative default rate has stayed below the original assumption but shown a gradual upward trend, currently at approximately 10%.  The increase in default rate is not unexpected, considering that borrowers under the PLGS have lost main recurrent incomes for some time and are in less favourable financial conditions.  Future changes in the default rate will depend on factors such as Hong Kong’s economic environment, the pace of recovery in different industries, and the financial conditions of individual borrowers.
4. In terms of loan administration, the lending institutions are required under the PLGS to take measures to prevent or minimise financial losses to the Government caused by defaults. Where a borrower defaults on repayment, the lending institution will initiate recovery actions having regard to its own policies, usual commercial practices, and the terms of the scheme. Specifically, such actions may include contacting the borrower by phone or written communication, negotiating repayment plans with the borrower, appointing agents for debt collection, and considering whether to take legal action.  We and the lending institutions have mechanisms in place to review default cases.  If there are reasonable grounds to believe that a borrower is wilfully evading loan repayments obligations, necessary actions will be taken, which probably include instigating legal proceedings against the borrower or even filing a bankruptcy petition with the court.  Furthermore, as always, if we or the lending institutions become aware of any suspected illegal activities of the borrowers (such as the use of false documents) during the review of individual cases, we will contact the law enforcement agencies for further action.  As for individual borrowers who are genuinely facing temporary repayment difficulties due to circumstances like prolonged unemployment, illness and injury, the lending institutions will discuss with them debt relief options and try to come up with feasible repayment arrangements.
5. All in all, the PLGS has served its purpose of supporting individuals in need during the epidemic. We and the lending institutions will continue to collaborate on follow-up tasks such as loan administration and debt recovery, striving to ensure the proper utilisation of public resources under the scheme.

Raymond Li
Executive Director and Chief Executive Officer
The Hong Kong Mortgage Corporation Limited
3 November 2023