- There are 320,000 small and medium-sized enterprises (SMEs) in Hong Kong, employing 50% of the private sector workforce. SMEs are therefore a cornerstone of the Hong Kong economy. Assisting SMEs to obtain sustainable bank financing is of great importance to the development of the Hong Kong economy. At the height of the financial tsunami, the Government introduced in December 2008 a Special Loan Guarantee Scheme (SpGS) of up to HK$100 billion to help enterprises secure loans from over 40 participating banks and lending institutions with the Government acting as the guarantor to tide over the liquidity problem. Dovetailing the expiry of the SpGS, the Hong Kong Mortgage Corporation Limited (HKMC) launched the SME Financing Guarantee Scheme (SFGS) in 2011 to provide a market-based platform to assist SMEs to have continued access to stable bank financing.
- In May 2012, the Government introduced Special Concessionary Measures through the SFGS, providing up to 80% loan guarantees to eligible enterprises at concessionary guarantee fees, with a total guarantee commitment of HK$100 billion by the Government. Under the relevant measures, banks and lending institutions would need to bear only 20% of the loss out of the bad debt of a guaranteed loan, and the remaining 80% would be borne by the Government. The Financial Secretary announced in the 2016-17 Budget to extend the application period of the relevant measures for another year, until the end of February 2017, and to further reduce the guarantee fees starting from June 2016. I would like to take this opportunity to review with readers the operation of the SFGS, and look at how to further optimise the relevant measures.
- The Special Concessionary Measures have achieved a great success since inception in 2012. Up to the end of March 2016, the HKMC had approved over 10,800 loan guarantee applications, involving loan facility amount and guaranteed amount of HK$43.7 billion and HK$34.9 billion respectively, and benefiting about 6,800 enterprises (some enterprises might have submitted more than one application) in different industries and over 175,000 employees.
- Among the loans approved, less than 3% were backed by tangible collaterals. It can therefore be seen that the Special Concessionary Measures have indeed rendered timely support to SMEs lacking collateral in the remaining more than 90% of the cases in obtaining the required financing from banks.
- On handling of loan guarantee applications, the HKMC mainly relies on the banks’ or lending institutions’ knowledge about the enterprises concerned and the credit risk assessments conducted by them. Since the loan guarantee is provided by the Government and the guarantee is up to 80% of the loan amount, the HKMC has the responsibility to sample check and conduct further review on individual applications, so as to ensure that public funds will be well spent.
- Have the further reviews conducted by the HKMC added to the difficulty of loan application by the enterprises? Not really, as only 78 cases, representing a mere 0.7% of the over ten thousand applications received up to the end of March 2016, were rejected.
- Over the past four years, the HKMC has endeavoured to streamline the loan guarantee application process and enhance its operation, with a view to providing more efficient service. For example, the HKMC has implemented an automated electronic platform to facilitate application and real-time monitoring of application status by banks or lending institutions. According to our statistics, on average, the HKMC was able to issue an approval-in-principle (AIP) in about 3 working days in over 60% of the past applications (the guarantee will be issued upon provision of the relevant documents by the bank or lending institution).
- In the first quarter of 2016, the average time required for issuing the guarantee in over 60% of the cases was about 10 working days, improving notably from 16 working days in over 50% of the past cases.
- On claim processing, the HKMC has been strictly adhering to the standard of responding within 10 working days. To safeguard the use of public funds, the HKMC has to ensure that banks or lending institutions have conducted credit risk assessment when approving the loans, and have taken timely credit monitoring and debt recovery actions.
- Considerable lead time was generally required by the banks or lending institutions to understand the relevant requirements and prepare the supporting information the first time they made a claim. There were also incidents that individual banks or lending institutions, due to various reasons, could not provide the supporting information to the HKMC, resulting in delays in claim processing. It was also noted that some banks and lending institutions had not devoted sufficient resources to claim handling, which had also affected the progress of the claims. Nonetheless, such problems have been largely resolved recently. With the banks and lending institutions becoming better acquainted with the relevant requirements and gradually gearing up in terms of resources, the claim process has become increasingly smooth.
- Up to the end of March 2016, the HKMC had received about 500 claims under the Special Concessionary Measures, and sufficient supporting information had been received on about 80 of the cases. All such cases have been approved by the HKMC, and none was rejected.
- Of the remaining 400-plus cases, the HKMC has received partial information on half of them. For these cases, we have provided clear guidance on the required supporting information. We are committed to responding in 10 working days upon receipt of sufficient supporting information from the banks or lending institutions. As for the remaining half of the cases, no supporting information has been received so far, and they are subject to follow-up action by the relevant banks or lending institutions.
- Over the past four years, the HKMC has acquired valuable experience from the operation of the Special Concessionary Measures. Such experience would be helpful to us in further enhancing the operation of the relevant measures, and improving the service to SMEs, banks and other lending institutions. For example, we are studying whether the statistics we collected can help narrow the scope of the review of loan guarantee applications, so that more resources can be allocated to handling claims. Separately, we will soon issue guidance and conduct briefings on commonly seen issues, so as to further enhance the transparency of the relevant measures. We believe that under the joint effort of the HKMC, the relevant Government department, banks and other lending institutions, the Special Concessionary Measures would continue to be able to render strong support to SMEs.
Executive Director and Chief Executive Officer
Hong Kong Mortgage Corporation Limited
27 April 2016