LCQ20: Principal moratorium arrangement introduced for borrowing enterprises
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Question:
The HKMC Insurance Limited launched the 90% Guarantee Product and the Special 100% Loan Guarantee (the two Schemes) under the SME Financing Guarantee Scheme in December 2019 and April 2020 respectively to assist small and medium enterprises (SMEs) in securing loans, and borrowing enterprises may apply for a principal moratorium (PM) arrangement for their loans granted under the two Schemes through the Pre-approved Principal Payment Holiday Scheme. In this connection, will the Government inform this Council:
(1) of the respective numbers of applications received and approved, the number of enterprises applying for the PM arrangement (set out by first-time application and renewal application respectively), and the amount of loans involved in the PM arrangement, in each month since the launch of the two Schemes;
(2) of the respective numbers of cases in which borrowing enterprises under the two Schemes have applied for the PM arrangement (and the average number of months for which the arrangement concerned is implemented), and set out in the table below a breakdown by the number of months for which the PM arrangement is implemented;
| Number of months for which the PM arrangement is implemented | 90% Guarantee Product | Special 100% Loan Guarantee | ||
| Number of cases | Average number of months for which the PM arrangement is implemented | Number of cases | Average number of months for which the PM arrangement is implemented | |
| 12 months or less | ||||
| More than 12 months and 24 months or less | ||||
| More than 24 months and 36 months or less | ||||
| More than 36 months | ||||
(3) of the respective numbers and percentages of cases in which borrowing enterprises under the two Schemes went bankrupt due to failure to repay interests during the period of PM arrangement, as well as the respective total amounts of loans involved in such cases;
(4) given that the local economy is still at an early stage of recovery, whether the Government has plans to extend the PM arrangement under the two Schemes; and
(5) given that even though the economy is beginning to recover, some SMEs have still been filed for bankruptcy because they can hardly pay the interest expenses under the PM arrangement, and some SMEs have relayed that their businesses have shown signs of recovery and all they need is a little more time to recover cash flow for repaying interests, whether the Government will, having regard to the economy which is still at an early stage of recovery, consider introducing, apart from the PM arrangement, a time-limited special scheme to allow enterprises to repay a minimum repayment amount which is less than the amount of their loan interests, so that they can be given a buffer period and avoid going bankrupt?
Reply:
President,
Under the SME Financing Guarantee Scheme (SFGS), the Government launched the 90% Guarantee Product and the Special 100% Guarantee Product on December 16, 2019, and April 20, 2020, respectively to help small and medium enterprises (SMEs) obtain commercial loans, with a view to helping businesses with relatively less operating experience and professionals seeking to set up their own practices obtain financing, and helping address the liquidity problem facing SMEs impacted by the epidemic.
The Government's consolidated reply to the five parts of the question is set out below:
Up to end March 2023 (over a span of about 40 months), a total of about 9 000 applications have been received under the 90% Guarantee Product. Among them, about 8 500 applications have been approved (i.e. an average of over 210 cases per month), involving a total loan amount of $16.3 billion. Principal moratorium has been opted for a total of 1 084 applications, involving loans of about $1.7 billion.
Up to end March 2023 (over a span of about 36 months), a total of about 66 200 applications have been received under the Special 100% Guarantee Product. Among them, about 61 400 applications have been approved (i.e. an average of over 1 700 cases per month), involving a total loan amount of $124.3 billion. Principal moratorium has been opted for a total of 42 940 applications, involving loans of about $88.5 billion.
Up to end March 2023, the principal moratorium arrangement for the above two guarantee products is as follows:
| Cumulative duration of implementing principal moratorium (months)(Note) | 90% Guarantee Product | Special 100% Guarantee Product |
||
| Number of loan applications | Average cumulative duration of implementing principal moratorium (months) | Number of loan applications | Average cumulative duration of implementing principal moratorium (months) | |
| Not more than 12 months | 878 | 11.2 | 28 419 | 13.6 |
| More than 12 months and not more than 24 months | 156 | 11 478 | ||
| More than 24 months and not more than 36 months | 47 | 2 918 | ||
| More than 36 months | 3 | 125 | ||
In case a borrowing enterprise defaults on repayment, the lending institution will initiate recovery actions having regard to its own policy, usual commercial practice and the terms of the SFGS. Generally speaking, the lending institution will endeavour to reach a debt restructuring arrangement with the defaulted borrowing enterprise having regard to the latter's repayment capability and financial condition.
For the above two guarantee products, there have been so far a total of two cases of bankruptcy of the borrowing enterprise during the principal moratorium period, involving a total loan amount of $8 million.
The Government's financial commitment under the SFGS has been increased substantially from the original level of $100 billion to $280 billion upon launching the 90% Guarantee Product and Special 100% Guarantee Product. Taking into consideration the need of prudent use of public money, the Government has made enhancements to the SFGS several times, including extending the principal moratorium arrangement twice in 2022 (in September and October) to a maximum duration of 42 months, with a view to relieving the repayment pressure on SMEs during the epidemic.
We will continue to closely monitor the applications and the operation of the SFGS, and review its effectiveness.
Ends/Wednesday, April 19, 2023
Issued at HKT 16:00
Issued at HKT 16:00
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