HKMA decided to further extend, by six months, the pre-approved Principal Payment Holiday Scheme, which was earlier set to expire in April. HKMA considers that a further six-month extension of the scheme is appropriate, as the impact of COVID-19 pandemic lingers on and some small and medium enterprises (SMEs) continue to face challenging operating environment. The extension has received full support of the 11 major lenders of the Banking Sector SME Lending Coordination Mechanism.
Moreover, for a loan that has been extended for 540 days or more cumulatively since it was first drawn down (or a trade loan which has been extended for 270 days or more cumulatively since it was first drawn down), authorized institutions can adopt a flexible approach and consider, on a case-by-case basis, whether other forms of relief are more suitable to help the customers ride out the current difficulties, subject to prudent risk management principles. With such an extension, the principal payments of all loans of eligible corporate borrowers (that is, borrowers with an annual turnover less than HKD 800 million and with no loan payment overdue for more than 30 days as at May 01, 2021) falling due between May 01 and October 31, 2021 should be deferred by six months except for repayments of trade loans, which should be deferred by 90 days. The deferment applies whether or not a loan has previously been on a principal payment holiday.
In line with the existing terms of the scheme, authorized institutions may require a borrower to settle trade facilities which are self-liquidating in nature if the borrower receives the underlying payment during the extended deferment period. For revolving facilities that are due for credit review between May 01, 2021 and October 31, 2021, authorized institutions should not adjust downward the existing facility limits within six months from the review dates. As stated in the HKMA guidance dated September 02, 2020 and January 29, 2021, the extension or other case-by-case relief arrangement will not result in a loan being downgraded, nor will it cause the loan to be categorized as rescheduled as long as the terms of the deferment are commercial. In addition, the guidance issued by the Hong Kong Institute of Certified Public Accountants stipulates that the provision of payment holidays to borrowers should not automatically result in loans being considered to have suffered a significant increase in credit risk for determining the expected credit loss, which is in line with the BCBS guidance. Authorized institutions should continue to recognize and classify loans of borrowers that are unable to meet the restructured payment schedule in a timely manner, in line with the HKMA guideline on loan classification system, and to make adequate provisions as and when needed.
Keywords: Asia Pacific, Hong Kong, Banking, COVID-19, Payment Deferrals, SME, Credit Risk, ECL, Loan Classification, 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 ArticleDanish FSA Delays ESEF Implementation, Identifies Key Domestic Risks
The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.
The European Commission (EC) has issued two letters mandating the European Supervisory Authorities (ESAs) to jointly propose amendments to the regulatory technical standards under Sustainable Finance Disclosure Regulation or SFDR.
The European Banking Authority (EBA) published its annual report on convergence of supervisory practices for 2021. Additionally, following a request from the European Commission (EC),
The Farm Credit Administration published, in the Federal Register, the final rule on implementation of the Current Expected Credit Losses (CECL) methodology for allowances
The U.S. Securities and Exchange Commission (SEC) looks set to intensify focus on crypto-assets and cyber risk and extended the comment period on the proposed rules to enhance and standardize climate-related disclosures for investors.
The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility and issued an update on the operational preparedness for zero and negative market interest rates.
The Commission for the Financial Market (CMF) in Chile published capital adequacy ratios (as of February 2022, January 2022, and December 2021) for 17 banks and for the banking system.
The Prudential Regulation Authority (PRA) issued a statement on the European Banking Authority (EBA) guidelines on management of non-performing exposures (NPEs) and forborne exposures.
The European Banking Authority (EBA) updated the implementing technical standards that specify the data collection for the 2023 supervisory benchmarking exercise in relation to the internal approaches used in market risk, credit risk, and IFRS 9 accounting.
The European Insurance and Occupational Pensions Authority (EIOPA) published a feedback statement on the responses received to the consultation on blockchain and smart contracts in insurance.