The novel coronavirus disease has raged through much of the world including Europe and the US in the past two months. Social-distancing measures like border closures, lockdowns and stay-at-home orders are being implemented to varying extents across the world, bringing the global economy to a near standstill. The health crisis presents unprecedented challenges to both the global and local economies, generating severe cash-flow pressure for many companies and adversely affecting the livelihoods of many employees.
As a banking regulator, I firmly believe that the banking system plays a crucial role no matter whether the economy is in boom or bust. During this challenging period, the HKMA has taken a three-pronged approach to bolster the banking sector so that it can perform its financial intermediation role more smoothly in support of the real economy and easing the cash-flow pressure faced by corporates and members of the public.
Proactive coordination with the banking sector to ease cash-flow pressure
Firstly, the HKMA has been closely coordinating with the banking sector and encouraging banks to continue to provide credit during these difficult times by making good use of their lending capacity. This would enable the much needed bank loans to reach corporate and personal customers in a timely manner.
The Banking Sector SME Lending Coordination Mechanism, established in October last year, has been serving as an effective communication platform for this purpose. As the convener of the Coordination Mechanism, the HKMA has held a number of meetings with banks and proactively clarified regulatory requirements relating to “rescheduled loans”. Thanks to the support of the banking sector, four rounds of relief measures have been rolled out so far with the aim of alleviating the cash-flow pressure on their customers. As of 21 April, 16 banks active in small to medium-sized enterprises (SMEs) lending had approved more than 11,000 SME applications for principal moratoriums, extensions of repayment schedules, contingency loans and other relief measures, involving over HK$86 billion. For personal customers, banks had approved more than 5,200 applications for principal payment holiday for residential mortgages and emergency personal loans, amounting to over HK$15 billion.
Last week, we took a further step and announced the launch of a Pre-approved Principal Payment Holiday Scheme with streamlined processes which enables corporates to receive financial relief more quickly. All eligible corporates whose loan payments fall due in the next six months will be pre-approved for automatic deferment without having to make an application. All they have to do is to confirm the deferment details with their bank. The Scheme covers more than 80% of all corporate borrowers in Hong Kong, and the HKMA has requested all banks to participate in the Scheme.
At the same time, we are actively exploring with the banking industry and relevant government departments the possibility of extending the principal repayment holiday arrangement to subsidised housing mortgages, so as to ease the financial burden of a wider public. The preparatory work is near completion, and the industry will make an announcement soon.
We understand that smaller-sized enterprises with little operating track record may encounter more difficulties in securing financing, particularly in times of economic downturn. The SME Financing Guarantee Scheme (SFGS) of the Hong Kong Mortgage Corporation (HKMC), a subsidiary of the HKMA, is well-positioned to fill this gap. In addition to enhancing the existing 80% and 90% Guarantee Products under the SFGS, the Government announced in its Budget in late February the launch of the Special 100% Loan Guarantee, which has started accepting applications this Monday. This Special 100% Loan Guarantee, applicable to all sectors with all guarantee fee waived, is expected to benefit tens of thousands of SMEs. A number of banks have launched special measures to expedite the processing of applications, including setting up designated customer teams, launching dedicated webpages, and simplifying the application procedures. So far, the HKMC and banks have already received thousands of enquiries from SMEs. On the first day of launch, banks have received a total of some 300 applications. Among these, about 30 applications have been submitted to the HKMC after a quick review, and ten of them were approved on the same day. The HKMC will continue to work closely with banks to process the applications at full speed so as to meet SMEs’ urgent needs.
Releasing buffers to boost lending capacity
Secondly, the HKMA is making good use of the capital and liquidity buffers accumulated in the past to further enhance banks’ lending capacity. When the economy was more buoyant in the past few years, we had been working hard to prepare for rainy days and built up strong buffers in the banking system. As the economy is now facing headwinds, it is high time to suitably deploy these buffers to enhance banks’ capacity in providing credit to support the real economy.
Since October last year, we have reduced the Countercyclical Capital Buffer ratio of banks twice by a total of 1.5 percentage points, releasing approximately HK$700-800 billion in lending capacity. Earlier this month, the regulatory reserve requirement on banks was also lowered by half, further releasing over HK$200 billion in lending capacity. At the same time, we have clarified our supervisory expectation on the use of liquidity buffers, allowing banks to temporarily deviate from the statutory minimum liquidity ratio when necessary. This series of measures facilitate more flexible deployment of funds by banks in providing credit to customers during these extraordinary times.
Multi-pronged measures to increase market liquidity
Thirdly, we seek to increase overall liquidity in the banking system to ensure banks have abundant liquidity to meet their daily needs and support domestic economic activities.
As far as Hong Kong dollar (HKD) liquidity is concerned, a combination of tight US dollar (USD) liquidity and volatilities in the global financial markets brought about by the spread of the coronavirus infections have heightened liquidity risks in the HKD money market. As part of the defensive measures, the HKMA has been suitably reducing the issuance size of Exchange Fund Bills, thereby increasing the overall HKD liquidity and ensuring the continued smooth operation of the HKD interbank market. In early April, we further explained to banks the operational details of the HKMA’s standing liquidity facilities framework, so as to assure banks that they can obtain necessary liquidity from the HKMA if they need to do so.
In order to alleviate the USD funding stress, we will soon introduce a “US Dollar Liquidity Facility”, whereby the HKMA will use the funds obtained from the US Federal Reserve’s repurchase agreement facility for foreign and international monetary authorities (FIMA Repo Facility) for lending to local banks through repurchase transactions. A total of US$10 billion will be made available under this new facility. Preparatory work to put in place the relevant mechanism has been completed, and we will announce the details later today.
Rising up to the challenges
To allow banks to focus their resources on the relief measures, the HKMA has introduced flexibility in certain regulatory requirements. We issued guidelines to banks last month, deferring the implementation of various requirements under the Basel III framework for one year in line with the Basel Committee’s decision. In addition, we have been adopting an accommodative approach in respect of requirements on supervisory returns and other regular reports from banks, and will issue a circular to banks today on deferring the 2020 supervisor-driven stress test to 2021, such that banks can deploy sufficient resources in tackling the current pressing challenges.
We will continue to closely monitor the impact of the coronavirus disease and maintain close communication with the industry. More supportive measures will be launched as and where appropriate. A new dedicated webpage has been set up on the HKMA website to help the public understand more about our latest measures.
Every cloud has a silver lining. While the health crisis has posed challenges to Hong Kong’s economy, from a positive perspective, it also presents an opportunity for Hong Kong people to stand together, demonstrate our resilience and our ability to tide over the challenges. Lately, there have been signs of a drop in new coronavirus cases in Hong Kong. Like all Hong Kong people, I hope this crisis will soon be over and hope to see the hustle and bustle in our economy again. I firmly believe that Hong Kong will rise up stronger than before. We are all in this together!
Hong Kong Monetary Authority
22 April 2020