“The scheme was introduced in Hong Kong during the pandemic when the economy was almost ground to a halt because of the closing of borders. It was a special measure to help SMEs,” Yau told a radio programme.
“As the economy gradually recovers, it’s a heavy burden on the government if we maintain a 100 per cent loan guarantee. We will keep a close eye on the situation, but as it stands, there is no decision to reintroduce the scheme,” he said.
Hong Kong’s de facto central bank on Friday set up a new task force to help small and medium-sized businesses facing pressure to repay loans, with nearly a dozen of local banks pledging to provide fair and quicker access to loans.
Concerns about the challenges faced by such businesses have resurfaced after real estate industry representatives met authorities earlier this month to discuss the tightening of property loans by banks amid a struggling post-pandemic recovery.
According to Yau, HK$143.2 billion was approved under the special scheme rolled out during the pandemic for about 67,000 cases that helped 40,000 businesses which included 400,000 members of staff.
The latest default rate of the scheme of 9.2 per cent, as well as the loan guarantee amount from the defaults, saw a sharp increase from 5.49 per cent and HK$7.5 billion respectively as of the end of October 2023.
Speaking at the same programme, George Leung Siu-kay, senior adviser in the CEO’s office at Hang Seng Bank, said the looming interest rate cuts in the United States might improve the market.
“When there are interest rate cuts, the cost of loans for enterprises would be relatively lower. If we are taking that into consideration alone, that could help stimulate market sentiments and business volume might go up,” Leung, formerly the Hong Kong General Chamber of Commerce CEO, said.
He expected two rounds of interest rate cuts in the states totalling to 0.5 per cent by the end of this year, with 0.25 per cent being the most likely to happen next month.
“Usually, the economic performances are better during periods of interest rate cuts,” he added, but cautioned that Hong Kong was not only affected by interest rates but also trade and investment.
Leung responded to the struggles of business owners facing cash flow issues, saying that the likelihood of banks recalling loans from SMEs were “absolutely minuscule” if they paid their loans on time and that there were very few precedents even during Sars.
He added that banks would help businesses check their loan or asset status when difficulties in repayment arise or would suggest certain financial proposals, which might give SMEs the impression that banks were hoping to recall loans.
The Hong Kong General Chamber of Commerce revealed in a recent survey that 74.3 per cent of small and medium-sized businesses polled cited cash flow as their biggest challenge in the coming 12 months.
