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Following is a written reply by the Secretary for Commerce and Economic Development, Mrs Rita Lau, to a question by Dr Hon Lam Tai-fai in the Legislative Council today (June 9):
Question:
At the meeting of this Council on April 21 this year, the Financial Secretary announced that the application period for the Special Loan Guarantee Scheme (SpGS) would be extended for the last time for another six months until December 31 this year. Subsequently, the Secretary for Commerce and Economic Development said publicly in May that after the expiry of SpGS at the end of this year, the Government will review how the existing SME Loan Guarantee Scheme can be improved and introduce new schemes to provide assistance for small and medium enterprises (SMEs). Regarding the assistance for SMEs, will the Government inform this Council:
(a) of SpGS's actual default rate and number of enterprises involved in default claims at present, as well as their types of businesses;
(b) whether it has assessed the impact of the European debt crisis, foreign exchange pressure and the increase in uncertainties in external markets in recent months on SMEs in Hong Kong in aspects such as receiving orders and collecting payments; if an assessment has been made, of the details; if not, the reasons for that; whether the Government will, in response to changes in actual market conditions, change its decision of not extending SpGS after its expiry at the end of this year;
(c) whether it has assessed if the banks will once again tighten their credits for SMEs, resulting in their having problems in financing, when SpGS expires at the end of this year, as well as the impact of not extending the application period for SpGS on the revolving credit line arranged by banks for SMEs which at present have been granted loans; if an assessment has been made, of the details; if not, the reasons for that;
(d) whether it has assessed if the institutions providing similar schemes under the existing market system or a new intermediary institution to be established can replace the role of guarantor played by the Government under SpGS; if an assessment has been made, of the details; if not, the reasons for that;
(e) whether it has drawn up a timetable for introducing new schemes or measures to provide assistance for SMEs in the future; if it has, of the details; if not, the reasons for that; and
(f) how it ensures that the new schemes or measures for providing assistance for SMEs can maintain continuity with SpGS and meet the actual needs of SMEs?
Reply:
President,
The Government launched the Special Loan Guarantee Scheme (SpGS) on December 15, 2008 with a total guarantee commitment of $100 billion. As at June 7, 2010, the Trade and Industry Department (TID) has received 35,474 applications, of which 32,835 have been approved, involving a total loan amount of over $79.5 billion. The Scheme has benefitted over 18,000 enterprises (95% of the beneficiaries are SMEs), which has helped to stabilise over 310,000 employment.
In response to Dr Hon Lam Tai-fai's question, the reply is as follows :
(a) As at June 7, 2010, TID has received 89 default claims, involving a total claim amount of about $96.74 million. The default rate so far is about 0.15% of the total guaranteed amount of the approved cases. The default cases come from various industries, including the manufacturing sector (e.g. electronics, metal products, textiles and clothing) and the non-manufacturing sector (e.g. import and export trade, wholesale and retail).
However, it must be pointed out that the existing default rate has yet to fully reflect the actual situation as most of the loans have been approved for less than a year. Moreover, under the SpGS, the borrowers are allowed to pay interest only in the first six months. We do not preclude the possibility that the number of default cases will continue to increase. We will continue to monitor the situation closely.
(b) to (d) The SpGS is a temporary initiative introduced to tackle the credit crunch arising from the global financial crisis in 2008. With improved external environment, Hong Kong's economic situation is also taking a favourable turn. The problems encountered in business operations and credit crunch have been largely relieved. According to Government's forecast, the Hong Kong economy is expected to grow at 4% to 5% in 2010 as a whole. Since the purpose of introducing the SpGS has been largely achieved, it is an opportune time to let the credit market gradually resume its normal operation. Although the worst moment of the financial tsunami is over, some unfavourable factors in the external environment are looming large recently. The recovery of the global and local economy may be bumpy. The trade may need some time to consolidate their business. The Financial Secretary has already announced on April 21 to extend the application period for SpGS for the last time until the end of 2010.
The maximum guarantee period for loans granted by the Government (including term loans (Note 1) and revolving loans (Note 2)) is five years or up to December 31, 2015, whichever is earlier. Although the application period for the SpGS ends in end 2010, the Government's guarantee for the revolving loans will continue to be effective until the end of the guarantee period.
After the end of the SpGS' application period, the existing SME Loan Guarantee Scheme (SGS) will continue to render assistance to SMEs in obtaining loans. At present, 35 lending institutions have joined the SGS. We have since November 2008 implemented a series of enhancement measures to the SGS, providing more flexibility to SMEs in the use of loans and extending the maximum guarantee period. Similar to the SpGS, the SGS provides Government guarantee to enable SMEs to obtain a loan of up to $12 million, and the maximum guarantee period is five years. We believe the enhanced SGS should be able to address SMEs' financing needs.
The idea of allowing the market mechanism or an intermediary organisation to replace the Government¡¦s role as the guarantor involves many complicated issues and requires careful consideration by various parties. The Government will continue to provide guarantee under the SGS to help SMEs obtain loans from the commercial lending market. We have no intention to change Government¡¦s role in this aspect at the moment.
(e) to (f) SMEs are the pillars of Hong Kong's economy. The Government attaches great importance to SMEs' healthy development and is committed to providing them with a conducive business environment and appropriate support. The SME funding schemes administered by TID aim at providing support to SMEs on various fronts, e.g. business operation, marketing and promotion, acquiring business equipment and enhancing competitiveness. The Innovation and Technology Fund and the Research and Development (R&D) Cash Rebate Scheme administered by the Innovation and Technology Commission render assistance to enterprises in pursuit of technological upgrading and innovation. The Design-Business Collaboration Scheme under CreateHK seeks to encourage SMEs to invest in design and its commericalisation through products and services.
To enable SMEs to embrace their future opportunities and challenges, we will explore ways to consolidate and make better use of the existing resources of the Commerce and Economic Development Bureau with a view to helping SMEs in enhancing their productivity and competitiveness. We will take into account all relevant factors, including views of the trade, to ensure that appropriate support and services are made available for SMEs.
Note 1: The starting date of the guarantee period is the date on which any funds are first withdrawn against the approved loan.
Note 2: The starting date of the guarantee period is the date on which that facility is made available to the borrower.
Ends/Wednesday, June 9, 2010
Issued at HKT 17:12
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