Hong Kong taxpayers may have to shoulder nearly HK$28 billion (US$3.57 billion) in bad loans from a now-defunct, fully government-backed financing scheme designed to help smaller enterprises survive the Covid pandemic.
Official data released to legislators showed that of the 67,189 loan applications approved under the special scheme, 13,231 had defaulted by the end of February, involving a total sum of HK$27.8 billion.
This translates to a default rate of 19.3 per cent.
As guarantor, the government would be responsible for repaying the defaulted amounts to participating lenders if the debts cannot be recovered.
Despite the 19.3 per cent bad loan proportion, the government said it was already better than the 25 per cent it originally expected, according to papers prepared by the Commerce and Economic Development Bureau.
At the centre of attention is the Special 100% Loan Guarantee, one of the products under the SME Financing Guarantee Scheme that was launched by the government in 2011 to help local small and medium-sized enterprises and non-listed businesses obtain financing.
The scheme offers three loan products in which 80, 90 or 100 per cent of the funds are guaranteed by the government.
It is managed by HKMC Insurance, a subsidiary of the government-owned Hong Kong Mortgage Corporation.
The 80 per cent product was first launched and a 90 per cent offering followed in 2019.
The government introduced the 100 per cent guarantee programme in April 2020 to help businesses struggling to pay wages and rent in a bid to prevent closures and lay-offs during the pandemic.
The loans were fully guaranteed by the government at a concessionary low interest rate, and applications closed in March 2024.
The maximum amount for each successful applicant was the total of 27 months’ wages and rent or HK$9 million, whichever was lower.
The programme received 72,824 applications, of which about half came from the catering and transport sectors and another 35 per cent from trading, wholesale and retail businesses.
About 92 per cent were approved, involving HK$143.9 billion, according to the bureau.
As of the end of February, the cumulative default rates of the 80, 90 and 100 per cent guarantee products were about 5.5, 4.6 and 19.3 per cent respectively, the bureau said.
The amounts involved were HK$5.6 billion for 2,467 defaults under the 80 per cent, HK$1.4 billion for 1,394 bad loans under the 90 per cent and HK$27.8 billion for 13,231 defaults under the 100 per cent scheme.
The proportions were “lower than the assumed overall default rates of 12 per cent, 16 per cent and 25 per cent respectively,” the bureau said.
It stressed borrowers had a repayment obligation. If a company failed to repay, the lender would first try to work out a feasible settlement plan or a debt restructuring arrangement with the borrower, according to the bureau.
If that failed, the lender would contact the guarantors to pursue recovery of the outstanding amount.
“[HKMC Insurance] and lending institutions will continue to review cases of loan default and take appropriate recovery actions in accordance with prudent commercial principles, with a view to reducing the loss of the government,” the bureau said.
The loan schemes have also been used by scammers. As of the end of February, 3,919 applications to the 100 per cent scheme – or 5.3 per cent of the total – had come under suspicion, involving HK$11.4 billion, the bureau said.
Of the questionable applications, 42 per cent of 1,660 cases were rejected during vetting. The rejected cases involved HK$5.4 billion. But the remaining 2,259 cases involving HK$6.1 billion were discovered only after the funds were withdrawn.
As for the 80 per cent loan scheme, there were about 500 suspicious cases involving HK$2 billion. The 90 per cent scheme saw 110 such cases involving HK$200 million.
Financial Secretary Paul Chan Mo-po announced in his budget in February that the government would continue to provide loan guarantees to enterprises through the SME scheme.
The government has extended the application period for the 80 per cent guarantee product to the end of March 2028, although the application period for the 90 per cent product closed last month. -- SOUTH CHINA MORNING POST
