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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 (November 17):
Question:
In his 2010-2011 Policy Address, the Chief Executive said that, "we must remain vigilant since there are still many uncertainties in the external economy. We need to guard against greater downside risks in the global economy and increased risks of asset-price bubbles in Asia resulting from the fragile recovery of the US economy and the lingering sovereign debt crisis in EuropeˇKˇKThe Hong Kong Mortgage Corporation Limited is exploring the establishment of a market-oriented loan guarantee scheme to provide a sustainable platform for obtaining credit". In this connection, will the Government inform this Council:
(a) given that the Government has anticipated that there are still many uncertainties in the external economy, whether the Government will reconsider extending the application period for the Special Loan Guarantee Scheme (SpGS) which will expire at the end of this year; if it will, of the details; if not, the reasons for that;
(b) whether it has assessed if termination of SpGS by the Government as scheduled will affect the capability of small and medium enterprises (SMEs) and the overall economy of Hong Kong in weathering further deterioration of the external economic situations; if it has, of the details; if not, the reasons for that;
(c) whether it has assessed if the actual default rate and the fund involved under SpGS to date are at variance with the assumed default rate of 12% and the estimated maximum expenditure exposure of $11.8 billion; if it has, of the details; if not, the reasons for that;
(d) whether the aforesaid loan guarantee scheme, now being explored by the Hong Kong Mortgage Corporation Limited (HKMC), is meant to replace SpGS; if not, whether the Government will introduce other related measures; if so, when the scheme will be launched and, given that there are only 31 working days (excluding Saturdays) left before the application period of SpGS ends, of the reasons for the
Government's not announcing the details of the scheme by now; how the Government ensures that there will be a smooth transition between the scheme or other related measures and SpGS when SpGS ends;
(e) whether the loan guarantee scheme or other measures now being explored by the HKMC will continue with the arrangements under SpGS, including provision to SMEs of a loan guarantee ratio of up to 80%, a maximum loan amount of $12 million for each enterprise, $100 billion guarantee commitment and revolving credit line, etc.; if so, of the details; if not, the reasons for that; and
(f) how the Government will consult the banking sector and SMEs, and ensure that banks will not tighten their credits and that financing will be easier for SMEs?
Reply:
President,
The Government launched the Special Loan Guarantee Scheme (SpGS) on December 15, 2008 with a total guarantee commitment of $100 billion to help enterprises tide over the credit crunch problem arising from the global financial crisis. As at November 12, 2010, over 37,000 applications have been approved under the SpGS, involving a total loan amount of over $90 billion. The scheme has benefited nearly
20,000 enterprises, of which 95% are SMEs, and helped preserve over 330,000 jobs.
In response to Dr Hon Lam Tai-fai's question, the reply is as follows:
(a) & (b) When the Government introduced the SpGS in December 2008, it had been clearly pointed out that the scheme was a time-limited initiative with the aim of helping enterprises tide over the credit crunch problem arising from the global financial crisis. It was an exceptional measure introduced during exceptional times. In order to provide continued support to Hong Kong enterprises during the crisis and to allow sufficient time for them to consolidate their businesses after the crisis, the Government has extended the application period thrice until end 2010.
In 2010, the credit crunch has been relieved following the significant improvement in the economic situation of Hong Kong. We should let the credit market resume its normal operation. The credit market has by and large returned to the pre-crisis level. According to Hong Kong Monetary Authority's Half-yearly Monetary and Financial Stability Report published in September 2010, domestic loans returned to their pre-crisis peak in the first quarter and grew at a pace of 14% in the second quarter compared with a year earlier. Many SMEs also inform us that the lending environment has greatly improved. In fact, in recent months, the number of applications under the SpGS has reduced.
Based on the above considerations, we will end the SpGS on January 1, 2011 according to the original plan. However, the existing SME Loan Guarantee Scheme (SGS), including the enhancement measures introduced in November 2008, will continue to render appropriate assistance to SMEs.
The Government will continue to closely monitor the external economic environment and its impact on Hong Kong's economy and enterprises. We would introduce additional measures where appropriate in the light of economic circumstances and needs.
(c) As at November 12, 2010, Trade and Industry Department has received 177 default claims under the SpGS, involving a total claim amount of about $173 million. The default rate is about 0.25%.
It is too early to estimate the actual default rate at this stage. As the majority of loans under the SpGS have only been approved for about one year and the maximum guarantee period provided by the Government is five years, we expect the number of default claims will increase with time.
(d) to (f) The Hong Kong Mortgage Corporation (HKMC) announced on November 15 its plan to introduce the market-based SME Financing Guarantee Scheme in January 2011, with a view to providing SMEs with an additional financing option. The scheme has drawn reference to the SpGS, with appropriate adjustments to provide more coverage and flexibility. The scheme could provide a guarantee coverage of up to 70%. The maximum loan amount for each enterprise is $12 million, which can take the form of term loan or revolving facility and is not subject to any ratio in respect of the two types of loans. Through the provision of loan guarantee, the scheme will encourage the Authorised Institutions to provide more financing options for SMEs in Hong Kong, complementary to the SGS.
We understand that the HKMC has suitably taken into account the views of the SMEs, the banking sector as well as other relevant organisations when drawing up the details of the scheme. It has also conducted in-depth analyses on all relevant factors such as the market situation, needs of enterprises as well as risk exposure to ensure that the scheme can meet market demand and function effectively.
Ends/Wednesday, November 17, 2010
Issued at HKT 15:46
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