Hong Kong extends payment holidays until April 2021 to give struggling small businesses a lifeline out of worst recession

The scheme covers small companies with annual turnover of less than HK$800 million (US$103 million)
There are 130,000 companies qualified under the scheme, and 15,000 of them have applied for the payment holiday break since May

Hong Kong economy

Enoch Yiu

Published: 5:22pm, 2 Sep 2020

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Hong Kong’s monetary authority has instructed banks to extend their loan repayment holidays for small businesses for another six months until April 2021, providing more breathing space for some of the biggest job providers as they struggle to crawl out of the city’s worst recession on record.

All banks have to allow qualified corporate borrowers to waive the repayment of their corporate loans or mortgages until April 2021, extending the waivers from October 31, according to a statement by the Hong Kong Monetary Authority (HKMA). During the extended holiday period, companies will only need to pay the interest but not the principals on their loans.

The de facto bank’s latest move is aimed at helping the city’s struggling retail, property and service industries amid the lockdowns and consumption slumps caused by the coronavirus pandemic.

“The extension of the repayment holidays for six months is very important to help the many SMEs solve their financial problems due to the pandemic,” said Peter Shiu Ka-fai, a lawmaker representing the wholesale and retail sector. “Companies have had no income or have seen their revenue slashed substantially during the past two months. They simply do not have cash to repay their mortgage or other loans. Without the extension, many firms may not be able to repay their loans.”

The business sector had lobbied the HKMA for the extension. A third wave of Covid-19 infections forced the government to introduce its toughest social distancing rules in mid-July. These included gatherings of no more than two people and stopping dine-in services at restaurants in the evenings. These moves pummeled Hong Kong’s retail sales in July, which shrank 23.1 per cent year on year, continuing its contraction for the 18th straight month.

The HKMA ordered the first payment holiday in April, its first such move since its establishment in 1993, recognising that small and medium-sized businesses – which generate more than half of the city’s jobs – bear the brunt of dwindling cash flow amid the crisis.

The scheme covers small companies with an annual turnover of less than HK$800 million (US$103 million), without serious overdue loans. There are 130,000 companies qualified under the scheme, and 15,000 of them have applied for the payment holiday break since May. This qualification covers 80 per cent of corporate borrowers in Hong Kong.

Those approved for the first holiday can get another six months of payment break, while applications are open for other companies that have not previously applied, HKMA said. At the end of July 2020, banks had approved over 43,000 applications for loan tenor extension and other forms of relief, involving an aggregate amount of over HK$530 billion, according to the HKMA.

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Any manufacturing business with fewer than 100 employees, or any non-manufacturing business with fewer than 50 people, can be defined as an SME. As many as 104 of the 162 licensed banks in Hong Kong have acceded to the HKMA’s instructions in granting the payments holiday.

All loan principal payments of eligible customers due between November 2020 and April 2021 will be deferred by six months except for repayments of trade loans, which will be deferred by 90 days, HKMA said.

As customers are already familiar with the scheme and with banks adopting work-from-home arrangements in response to the pandemic, banks will not issue individual notifications to eligible customers regarding the extension of the scheme, the HKMA said.

Hong Kong Associations of Banks, HSBC, BEA and Bank of China (Hong Kong) all issued statements to voice their support.

“The HKAB urges corporate customers in need to contact their banks,” the association said in a statement. “The banks will process requests related to principal repayment deferment in accordance with the guidelines set out by the HKMA.”

In addition, HKAB said that its members also support the Hong Kong Mortgage Corporation’s loan programmes for SMEs.

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“We welcome this extension of the payment holiday scheme as the economy is still hard hit by Covid-19. We will call up our customers to offer this relief measure,” said Thomas Tsui Chun-man, general manager and head of corporate banking at BEA.

HSBC, the biggest lender in the city, since February has offered HK$150 billion worth of relief, including payment holidays to corporate and individual customers. BOCHK for its part has offered relief measures to over 10,000 corporate clients.

As the pandemic continues to disrupt businesses, mainly SMEs in the tourism, leisure and food and drinks industries, the Hong Kong government has introduced many measures to help SMEs and boost the local economy in recent months.

This article appeared in the South China Morning Post print edition as: Banks told to extend SMEs’ loan break

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