HKMA Extends Principal Payment Holiday Scheme by Six Months
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
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.
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