HKMA Announces Initiative to Support SMEs Amid COVID-19 Outbreak
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
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Victor Calanog, Ph.D.
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Previous ArticleFCA Report Presents Key Lessons Learned from TechSprint
Next ArticleAPRA Publishes Submission on Fintech and Regtech
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.
DNB Publishes Multiple Reporting Updates for Banks
DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.
NBB Sets Out Climate Risk Expectations, Issues Reporting Updates
The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting
EBA Updates Address Securitization Standards and DGS Guidelines
The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.
FSB Publishes Letter to G20, Sets Out Work Priorities for 2023
The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023