Hong Kong Mortgage Corp keen to encourage more SME loans

Measures come after SME loan applications down 37 per cent year in the first half amid economic downturn

PUBLISHED : Tuesday, 19 July, 2016, 9:13pm
UPDATED : Wednesday, 20 July, 2016, 12:01am

Hong Kong Mortgage Corporation (HKMC) has introduced a range of measures to encourage more small-and-medium sized companies to borrow from the HK$120 billion government guarantee programme.

The move comes at a time when the number of applications from the HKMC SME Financing Guarantee Scheme fell by 37 per cent in the first half of the year to only 415 from 660 in the same period last year. In terms of funding amount, it was down 29 per cent to HK$1.32 billion in the first half compared to HK$1.87 billion a year earlier.

HKMC chief executive Raymond Li Ling-cheung said the drop in the first half was due to the economic slowdown.

“Many SMEs were reluctant to borrow in the first half of this year due to the mainland economic slowdown and the worry over the outlook after the Brexit in June,” Li said.

“If SMEs don’t want to borrow money, we can’t do anything to help them. But for those SMEs that want to borrow money and have found it hard to borrow from banks, we want to encourage them to use the programme which could lend up to HK$80 billion with government guarantee of up to HK$65 billion,” he said.

The government first launched a HK$100 billion special guarantee lending scheme in December 2008 after the financial crisis hit the US and Europe. In January 2011 management of the scheme was transferred to the HKMC.

Under the scheme, the government provides an 80 per cent guarantee to 30 commercial banks so they can lend money to SMEs which do not have sufficient assets to secure bank loans. However, the scheme hasn’t been popular since its launch, with only approval of 11,034 cases amounting to HK$44.4 billion and a government guarantee of HK$35 billion, representing only one third of the total quota.

Many SMEs were reluctant to borrow in the first half of this year
Raymond Li, HKMC chief executive

Li said one reason for the lack of interest in the programme was that many banks were reluctant to promote the loans as they complained about the lengthy time it took for them to get the money back. At the scheme’s original launch, it needed on average 500 days for banks to be paid back from the government guarantee programme for loans in default due to the extensive documentation required, including documents regarding the banks’ internal lending policies.

Li said after discussion with banks, the documentation issue has been solved and banks can get back their money within 100 days after submitting a claim, which has led several major banks to agree to promote the lending programme.

“The HKMC has made improvement to the scheme to encourage banks to promote the type of lendings. Several big banks such as Bank of China (Hong Kong) has agreed to encourage more of the lending under the programme.”

“We want to let more SMEs know that the scheme could still offer about HK$80 billion in bank loans for them. This would help them get through the difficult economic times at the moment,” he said, adding that the HKMC would connect with more SME organisations to promote the scheme.

Meanwhile, Li said the HKMC was also reviewing whether it needed mandatory reporting by all its staff of their bank lendings, even without any conflict of interest. At present, HKMC staff only need to report their bank loans if a conflict of interest arises.

James Lau, now Hong Kong’s undersecretary for Financial Services and the Treasury, was reported to have failed to disclose a mortgage deal six years ago when he headed the HKMC. Li said the review was not after Lau’s case but began in 2015 as part of a regular review.