HKMA issued a circular on a 100% Loan Guarantee Product under the Small and Medium-Sized Enterprise (SME) Financing Guarantee Scheme. The Financial Secretary proposed, in the Budget 2020-21, the introduction of a concessionary low-interest loan under the SME Financing Guarantee Scheme administered by the HKMC Insurance Limited (HKMCI), in which 100% loan guarantee will be provided by the government for a total loan guarantee commitment of HKD 20 billion (100% Scheme). The circular sets out the policy intent of HKMA on the relevant regulatory treatment in respect of a loan granted by any participating authorized institution to an eligible SME borrower under the 100% Scheme. Additionally, it has been notified that HKMA, along with the major banks and HKMCI. met representatives from the commercial sector (including Members of the Legislative Council) to exchange views on the effectiveness of banks’ measures to support SMEs and discuss future follow-up work in this regard.
Large exposure, capital adequacy, and collateral risk management
For the period in which the legal title of the loan remains with the authorized institution, HKMA will apply the same treatment as mentioned in its December 16, 2019 circular in relation to the Banking (Exposure Limits) Rules (BELR), Banking (Capital) Rules (BCR), and the Supervisory Policy Manual module CR-G-7 in respect of the authorized institutions’ credit exposures during the period.
- BELR—The circular referred to above will be approved for the purposes of the BELR Rule 57(1)(d) in respect of an authorized institution’s exposure to the HKMCI arising from the provisions of the guarantee by the HKMCI under the 100% Scheme. Accordingly, for the exposure to the HKMCI arising from any loan to an SME which is covered by the HKMCI guarantee under the 100% Scheme, the amount so covered is deducted from the authorized institution’s exposures to the HKMCI.
- BCR—An authorized institution may regard the Government's commitment to support the HKMCI for the 100% Scheme as a counter-guarantee under and treat this counter-guarantee as if it were the original guarantee issued by the HKMCI to the authorized institution for the 100% Scheme. In relation to the IRB approach, an authorized institution should seek HKMA's exemption approval under section 12(1) of BCR and apply the STC approach for loans granted under the 100% Scheme instead.
- SPM module CR-G-7—After taking into account the arrangements in relation to the 100% Scheme described above, HKMA would not consider it unreasonable for an authorized institution to regard the cover of the Government's commitment for the 100% Scheme as enabling the authorized institution to treat any loan to an SME which is covered by the respective HKMCI guarantee as "secured" for risk management purposes.
Credit assessment and approval
A participating authorized institution is expected to check the eligibility of the applicants based on the established criteria specified under the 100% Scheme and the loans will be transferred by the participating authorized institution as loan owner to The Hong Kong Mortgage Corporation Limited shortly after they are created without recourse. HKMA, therefore, considers that the residual credit risk exposure of the authorized institution should be very minimal and that the regulatory requirements on credit assessment and credit risk management, as set out in the SPM module CR-G-2, do not apply to loans granted by an authorized institution under the 100% Scheme.
Keywords: Asia Pacific, Hong Kong, Banking, SME, COVID-19, HKMCI, Guarantee Scheme, Large Exposure, BELR, BCR, Capital Adequacy, Collateral Management, HKMA
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous ArticleECB Updates Documentation on SHS Reporting by Banks
The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.
The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.
The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.
The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups
The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.
The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.
The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.
The European Central Bank (ECB) published the results of its thematic review, which shows that banks are still far from adequately managing climate and environmental risks.
Among its recent publications, the European Banking Authority (EBA) published the final standards and guidelines on interest rate risk arising from non-trading book activities (IRRBB)
The European Commission (EC) recently adopted regulations with respect to the calculation of own funds requirements for market risk, the prudential treatment of global systemically important institutions (G-SIIs)