- While the COVID-19 epidemic is behind us, its impacts and the changes brought to society and individuals remain deeply felt by many citizens. During the height of the epidemic, unprecedented measures were implemented globally to combat the outbreak and stabilise the economy. The Hong Kong SAR Government likewise promptly introduced a range of initiatives to support enterprises and citizens. These included the launch of the Special 100% Loan Guarantee under the SME Financing Guarantee Scheme (SFGS) in April 2020 to assist enterprises in addressing cash flow issues, thereby helping to minimise enterprise shutdowns and layoffs. Additionally, the 100% Personal Loan Guarantee Scheme (PLGS) was introduced in April 2021 to provide a supplementary financing option to individuals suffering from cessation of main recurrent incomes from employment during the epidemic. Both products are operated by HKMC Insurance Limited (HKMCI), a subsidiary of The Hong Kong Mortgage Corporation Limited. Several years have passed, and the application periods for both products have expired following society’s return to normalcy. The HKMCI and the participating lending institutions have since shifted their focus from application approval to tasks such as loan administration and debt recovery. I would like to review the achievements of these two products and provide an update on their latest status.
- In response to the lingering challenges posed by the epidemic, the Government had introduced a series of enhancements and relief measures to both products. These measures included extending the application periods, raising the maximum loan amounts, extending the maximum repayment periods, and extending the principal moratorium arrangements, etc. The application period for the PLGS ultimately expired at the end of April 2023. A total loan amount of HK$4.66 billion was approved, benefiting over 59,000 individuals with an average loan size of HK$78,500 per borrower. Approximately one-third of the borrowers had a monthly income of HK$12,000 or less before losing their main recurrent incomes, which shows that the scheme had helped many low-income individuals overcome temporary difficulties. Regarding the Special 100% Loan Guarantee for small and medium-sized enterprises (SMEs), the application period expired in end-March 2024. A total loan amount of HK$143.9 billion was approved, benefiting approximately 40,000 enterprises and 400,000 related employees, thereby helping to achieve the policy objective of supporting enterprises and safeguarding jobs. Moreover, a research report published by the Hong Kong Monetary Authority in March 2024 revealed that the SFGS brought about credit uplift of varying extent across industries. The SFGS was also found to have reduced the probability of SME loan downgrades by six percentage points, providing evidence that the scheme had a stabilising effect on the perceived creditworthiness of the borrowers.
- The two products were able to serve as timely relief for many enterprises and individuals in need during the epidemic because they provided for a simple and swift application approval process by design. As the targets of these products were at that time unable to meet normal loan approval requirements (such as the need to demonstrate good credit standing, repayment ability, business prospects, etc.), it was stipulated that no credit assessment was required. Of course, abuse prevention was also a key consideration in product design. The products therefore have in place a control and safeguard mechanism which include measures such as customer due diligence and borrowers’ eligibility verification by the lending institutions, as well as reporting of the borrowers’ repayment, delinquency and default records to credit reference agencies. The HKMCI also conducted appropriate checks on the applications submitted by the lending institutions. In addition, the Special 100% Loan Guarantee requires borrowing enterprises’ shareholders to provide personal guarantees, demonstrating the shareholders’ commitment to the enterprises’ ongoing operations, repayment obligations and financial conditions.
- The Special 100% Loan Guarantee for SMEs and the PLGS were special relief measures under exceptional circumstances. Considering the target borrowers and the approval criteria (especially not requiring repayment ability assessment), their default rates are expected to be higher and should not be compared with those of usual commercial loans in the market. As no empirical data was available for default projections when the two products were launched, their overall default rates could only be assumed at 25% as the basis to estimate the Government’s expenditure on default loss. As of mid-May this year, the actual cumulative default rates for the two products were 15.6% and 19.3% respectively, which were still lower than the aforementioned assumptions. There will however be a further rise in defaults as the financial conditions of borrowing enterprises and individuals which have been severely affected by the epidemic for a period of time remain relatively unfavourable, while Hong Kong’s economy continues to face a challenging external environment.
- The HKMCI has been closely monitoring the default situations of the two products, and coordinating efforts with the lending institutions to properly manage defaults in a way that on the one hand helps those borrowers with an intention to repay, and on the other hand takes appropriate recovery actions to reduce losses.
- When a borrower defaults on a loan, the lender’s first step is to follow up with the borrower for an understanding of the latter’s overall financial and funding conditions, and to discuss a feasible repayment plan with the borrower who is willing and able to repay. Such a repayment plan may entail interest-only repayment during a transition period, partial principal repayment or other flexible repayment arrangements, so that the borrower can gradually resume repayment as soon as possible under a debt restructuring arrangement. Here is a real case: an enterprise obtained loans under the 80% Guarantee Product and the Special 100% Loan Guarantee from four banks between 2020 and 2023. While about one-third of the total loan principal has been repaid, a portion of the loans became overdue. That enterprise took the initiative to approach the banks to explain its operating difficulties and discuss repayment arrangements. After discussions among the relevant parties, the enterprise has reached a repayment agreement in principle with one of the banks, and successfully arranged partial principal repayment for some loans with the other three banks. These repayment arrangements have provided the enterprise with more room to tackle the current challenges.
- If a lending institution and a borrower fail to reach a repayment agreement, the borrower refuses to cooperate, or there are reasonable grounds to believe that the borrower is deliberately evading repayment obligations, the lending institution will take necessary recovery actions in accordance with its policies and usual commercial practices. These include contacting the borrower/guarantor to demand repayment, applying for a court order, filing a winding up petition and/or a bankruptcy petition, etc. The handling methods to be used are subject to the actual circumstances of each case, with an objective of recovering debts in the most effective way to minimise losses to the Government. For example, an enterprise obtained loans under the Special 100% Loan Guarantee and applied for principal moratorium in September 2022, but it started to default on the loans around six months later and refused to discuss a repayment plan with the lending institution. The lending institution subsequently took legal actions, including obtaining a court judgement for the debts owed by the enterprise and the guarantor, as well as filing a bankruptcy petition with the court. Eventually, the guarantor was adjudged bankrupt in September 2024. Another example is about an individual who obtained a loan under the PLGS in January 2022. The monthly repayment amount during the principal moratorium period was around HK$70, but the borrower immediately defaulted after drawdown. The lending institution tried to contact the borrower many times but in vain. In 2024, the HKMCI required the lending institution to file a bankruptcy petition with the court, and the borrower was adjudged bankrupt eventually.
- Separately, as always, if any suspected illegal activity (such as the use of false documents) is discovered when reviewing individual cases, the HKMCI and the lending institutions will take necessary actions, including reporting and providing assistance to the law enforcement agencies. In respect of the Special 100% Loan Guarantee for SMEs, there were 3,552 suspicious cases as of mid-May 2025, accounting for about 5% of the total applications received and involving around HK$10.5 billion. Of those cases, 1,514 applications involving HK$5 billion (over 40%) were rejected or withheld by the HKMCI or the lending institutions during the vetting process, while the remaining 2,038 cases were discovered after loan drawdown. Some of the cases are still under investigation, while a number are at the trial or even the sentencing stage. For the PLGS, among the 1,989 suspicious cases, 1,544 (almost 80%) were rejected or withheld by the HKMCI or the lending institutions during application vetting. The work done on this aspect has reduced potential risks and default losses to some extent.
- The Special 100% Loan Guarantee and the PLGS have successfully provided appropriate support to numerous enterprises and individuals during the epidemic, but there is still a lot of follow-up work to do in the future. The HKMCI and the lending institutions will continue to act prudently, striving to ensure proper utilisation of public resources while assisting borrowers with genuine difficulties where feasible.
Colin Pou
Executive Director and Chief Executive Officer
The Hong Kong Mortgage Corporation Limited
2 June 2025
