On 3 April 2020, the Hong Kong Monetary Authority (HKMA), Hong Kong Mortgage Corporation Insurance Limited (HKMCI), and a number of major banks held a meeting with representatives from the commercial sector (including members of the Legislative Council) to discuss the effectiveness of existing measures adopted by banks to support small and medium sized enterprises (SME) in light of the COVID-19 outbreak, and trade views on potential future measures to take.
The HKMA had previously adopted a number of measures aimed at assisting SMEs in riding out the crisis, as well as calling for the banking industry to follow their lead in this regard. In light of the continued difficulties caused by the outbreak and the success of the previous measures, five further initiatives were suggested by the HKMA and HKMCI in the meeting, including:
- The introduction of a series of measures aimed at increasing the banking sector’s liquidity to ensure banks have ample liquidity to support local economic activities, as outlined in a separate circular1 from the HKMA. The measures include obtaining US dollars through repo transactions with the US Federal Reserve for lending to local banks, clarifying aspects of the HKMA’s Liquidity Facilities Framework to facilitate easier use by banks, and clarifying the HKMA’s supervisory expectations on liquidity regulatory requirements;
- Reducing the current level of regulatory reserves by half so as to release around HK$200 billion of lending capacity, so as to allow banks more room on their balance sheets to cater for future financing needs;
- Asking banks to consider arrangements to automatically offer extensions of loan tenor or principal repayment holidays to qualified SMEs without requiring an application – instead, borrowers will simply need to indicate whether they wish to accept the offer or not;
- Announcing in due course the date for banks to receive applications from qualified SMEs for the special 100% Loan Guarantee under the SME Financing Guarantee Scheme, for which the preparatory work by the HKMCI has reached an advanced stage; and
- Noting that banks have announced they will allow SME clients in the import-export and manufacturing sectors facing cash-flow pressure due to delays in shipments to further extend the repayment period of trade financing facilities, and that they will consider allowing more clients to apply to convert trade financing lines into temporary overdraft facilities to allow for more flexible management of cash flow.
The press release also summarised the measures adopted previously and their results, including the establishment of the Banking Sector SME Lending Coordination Mechanism and the introduction of measures such as principal repayment holidays for SME loans and residential mortgages, loan extensions and special loans to customers in sectors particularly affected by the outbreak. Aid was also provided to banks via adjustments to regulatory requirements, such as lowering the Countercyclical Capital Buffer (CCyB) ratio twice since October 2019 by a total of 1.5% and thus freeing up approximately HK$700-800 billion of lending capacity, and deferring the implementation of new requirements under the Basel III framework.
According to the HKMA’s press release2, these measures have proven to be relatively successful, per the HKMA. Almost 9,000 applications from SMEs for repayment holidays, loan extensions, and special relief loans have already been approved, involving over HK$57 billion. Meanwhile, over 7,800 applications for loans from heavily impacted industries, such as transportation and tourism, have also been approved, totalling over HK$40 billion. The HKMA also noted that despite the difficulties faced by the economy, the total loans granted by the banking sector from the end of September 2019 to the end of February 2020 had increased by HK$192 billion and the overall credit line granted by banks to SMEs in the fourth quarter of 2019 had also increased by HK$6.9 billion, suggesting the decrease in CCyB ratio had achieved its intended effect of allowing banks more leeway to provide more credit to customers in need of such support.
The HKMA stated that it will continue to work closely with the banking industry to actively implement the measures through the Banking Sector SME Lending Coordination Mechanism and other channels to help the society in these difficult times.
1. Hong Kong Monetary Authority (2020) 'Liquidity measures in response to Covid-19 outbreak', Circulars [online]. Available at: < https://www.hkma.gov.hk/media/eng/doc/key-information/guidelines-and-circular/2020/20200403e1.pdf> (Accessed: 6 April 2020)
2. Hong Kong Monetary Authority (2020) 'The HKMA and the banking sector join forces to help Hong Kong’s economy overcome the outbreak of COVID-19', Press Releases [online]. Available at: https://www.hkma.gov.hk/eng/news-and-media/press-releases/2020/04/20200403-4/ (Accessed: 6 April 2020)