LCQ2: Small and Medium Enterprises Financing Guarantee Scheme
Following is a question by the Hon Chung Kwok-pan and a written reply by the Secretary for Commerce and Economic Development, Mr Gregory So, in the Legislative Council today (April 15):
The Small and Medium Enterprises Financing Guarantee Scheme (SFGS) implemented by the Hong Kong Mortgage Corporation Limited (HKMC) aims to help small and medium-sized enterprises (SMEs) obtain loans from participating lenders such as banks for meeting their business needs. According to the Government's reply to a question raised by me at the Legislative Council meeting of February 25 this year, the numbers of applications received and cases of loans approved in respect of the special concessionary measures (SCM) under the SFGS in the second half of 2014 dropped by about 30 per cent compared with the figures of the same period in 2013. Moreover, from April 2013 to January this year, the HKMC received 196 net default claims (i.e. claims other than those in which the outstanding amounts had been fully repaid or those withdrawn by the lending institutions) relating to the SCM, totalling about $420 million. Among these claims, only 11 cases (i.e. 5.6 per cent) in respect of which the processing was completed and payment was made, while 185 cases were still outstanding. In this connection, will the Government inform this Council if it knows:
(1) in respect of the aforesaid 11 cases, the average time (the number of days counting from the day of receipt of the claim to the day of payment for the claim, and the same applies below) taken by the HKMC for completing the processing of each case, and the details of these cases;
(2) the respective approval percentages of the net default claims under the SFGS and the SCM in each of the past three years; the average time taken by the HKMC to process each of such claims, and how such time taken compares with the target time that "under normal circumstances, the HKMC would respond to a lending institution within 10 working days upon receipt of its default claim indicating whether the claim concerned is approved or not or the additional information/documents the lending institution would need to provide" as stated in the aforesaid reply; why the HKMC had not yet completed the processing of the aforesaid 185 net default claims, the respective numbers and details of those claims which have been received for six months to one year and those for more than one year, and the expected time for completion of the processing of such claims; and
(3) whether the HKMC has assessed if the low proportion, of those cases in respect of which the processing was completed and payment was made among the net default claims under the SFGS, reflects an unduly long time taken by the HKMC to process default claims, and if this has affected lending institutions' willingness in participating in the SFGS, which indirectly affects the number of applications for the SFGS; whether the authorities will review and enhance the SFGS so that it will be more effective in helping SMEs obtain loans?
The Hong Kong Mortgage Corporation Limited (HKMC) launched the SME Financing Guarantee Scheme (SFGS) on January 1, 2011 to provide a market-based loan guarantee scheme to assist Hong Kong enterprises in meeting their financing needs.
In the light of the uncertain external economic environment, the Government has provided a total loan guarantee commitment of $100 billion for the HKMC to implement time-limited special concessionary measures under the SFGS from May 31, 2012, under which 80 per cent loan guarantees are offered at a concessionary guarantee fee rate. The application period of the special concessionary measures was originally nine months until end of February 2013, which was subsequently extended thrice to the end of February 2016. My reply to the question is as follows:
(1) From April 2013 to January 2015, the HKMC has received 196 net default claims under the special concessionary measures involving a total claim amount of around $420 million, of which the HKMC has approved and settled the payment of 11 claims. The 11 claims come from different industries, with the claim amount ranging from about $100,000 to about $4.8 million. The total amount of payment is around $20 million.
The average time taken by the HKMC to complete the processing of these claims is 341 calendar days (counting from the day of receipt of the claim to the day of payment of the claim). The average actual time taken by the HKMC to vet these claims is 101 calendar days, the average time taken by the lending institutions to prepare for the information/documents required is 218 calendar days, and the average time taken by the HKMC to remit the compensations to the lending institutions is 22 calendar days (Note).
(2) From May 31, 2012 to March 31, 2015, the HKMC has received 246 default claims under the special concessionary measures, of which the HKMC has approved 19 claims and further settled payment of 16 claims. The average time taken for processing these 16 claims is 380 calendar days (counting from the day of receipt of the claim to the day of payment of the claim). The average actual time taken by the HKMC to vet these claims is 105 calendar days, the average time taken by the lending institutions to prepare for the information/documents required is 257 calendar days, and the average time taken by the HKMC to remit the compensations to the lending institutions is 18 calendar days (Note).
Since the launch of the special concessionary measures on May 31, 2012, the approval rate of default claims submitted thereunder for which the due diligence review has been completed is 100 per cent.
Under normal circumstances, the HKMC would respond to a lending institution within 10 working days upon receipt of its default claim, indicating (i) whether the claim concerned is approved or not; or (ii) the additional information/documents it needs to provide. The actual processing time would depend on the complexity of each claim and whether the lending institution could provide complete information/documents. Generally speaking, each case would require multiple rounds of questions and answers before the due diligence review can be completed and the final amount of compensation can be determined.
As for the 185 default claims received between April 2013 and January 2015 and which remained outstanding as at the end of January 2015, the borrowing enterprises come from different industries and the claim amount ranged from about $40,000 to around $9.6 million. The HKMC has been actively processing these outstanding default claims, and the primary reason why the HKMC could not yet complete the vetting of these claims is that the lending institutions concerned have not yet provided the HKMC with all the required information/documents for the due diligence review. The breakdown of these claims is set out in the Annex.
As at the end of March 2015, the lending institutions in respect of 169 of the above claims have yet to provide the required information/documents.
The HKMC has reviewed from time to time to ensure that it has sufficient resources to process the claims received from the lending institutions, and aims to complete the processing of the above claims as soon as possible upon receipt of the required information/documents from the lending institutions concerned.
(3) To ensure the prudent use of public funds, in processing a default claim, the HKMC needs to conduct due diligence review to verify whether the lending institution has complied with the relevant requirements, including the requirements stated in the Master Deed of Guarantee of the SFGS signed with the HKMC, and whether it has complied with its relevant internal policies and procedures in handling loan applications, credit monitoring and default cases under the special concessionary measures. The actual processing time would depend on the complexity of each default claim and whether the lending institution could provide complete information/documents. Generally speaking, each case would require multiple rounds of questions and answers before the due diligence review can be completed and the final amount of compensation can be determined.
To expedite the processing of default claims, the HKMC has had meetings with the lending institutions over the past year to explain the requirements of its due diligence review and to have a better understanding of the internal policies and operation of the individual lending institutions.
The loan demand and the number of guarantee applications are affected by a number of factors, including the economic environment and market situation, etc. We will continue to monitor closely the operation of the special concessionary measures, with a view to providing timely and adequate support to enterprises.
Note: The HKMC would remit the compensations which have been approved before the closing day of the month but have yet to be paid to the designated account of the lending institutions concerned on the last working day of that month.
Ends/Wednesday, April 15, 2015