Hong Kong SAR – Covid-19: HKMA and banking sector actions
Response of the HKMA, HKMC
The HKMA, HKMC Insurance Limited (HKMCI), representatives from major banks and members of the Legislative Council met in the first week of April to discuss and evaluate measures to support SMEs in light of the economic effects of the Covid-19 pandemic.
As a result of the ongoing discussions, the HKMA and the HKMCI put forward another round of five initiatives to further support SMEs in addressing cash-flow pressure amidst this crisis, as summarised in this press release. The measures include:
- Increasing liquidity: the HKMA will introduce measures aimed at increasing the banking sector’s liquidity so that banks will have ample liquidity to support local economic activities. Measures include obtaining US dollars through repo transactions with the U.S. Federal Reserve for lending to local banks, clarifying aspects of the HKMA’s Liquidity Facilities Framework to make it easier to use by banks, and further explaining HKMA’s supervisory expectations on liquidity regulatory requirements so as to encourage banks to deploy their liquidity buffers more flexibly to support lending and other business activities. For further details on liquidity measures, please refer to this circular issued.
- Regulatory reserves: Regulatory reserves will be reduced by half to release a total of HK$200 billion of lending capacity to commercial banks to allow them room to cater for future financing needs. Details have since been provided by the HKMA.
- Automatic extensions of loan tenor: the HKMA issued a circular on 17th April on the Pre-approved Principal Payment Holiday Scheme, in which participating banks will pre-approve deferment of loan principal payments falling due between 1 May 2020 and 31 October 2020 of eligible SMEs for up to 6 months. The HKMA has said that for the Scheme to be effective, it is important that the Scheme has the full support of the whole industry and that it therefore expects all AIs to participate in the Scheme under the same terms.
- SME Financing Guarantee Scheme: as announced in two recent press releases (one the 16th and another on 18th April), the “Special 100% Loan Guarantee”, under the SME Financing Guarantee Scheme (SFGS), has been launched principally for SMEs. HKMC Insurance Limited (HKMCI), a wholly-owned subsidiary of the Hong Kong Mortgage Corporation Limited, announced that the Special 100% Loan Guarantee started receiving applications from 20 April 2020. Currently there are ten lenders under the SFGS.
- Import-export / manufacturing sectors: banks have pledged to allow extensions in repayment of trade financing facilities, and possible conversions of trade financing lines to temporary overdraft facilities for SME customers in this sector who may be facing cash-flow pressure.
Adjustments to regulatory requirements
In addition, the HKMA has made adjustments to regulatory requirements to allow banks more flexibility to provide credit and support the local economy. Such adjustments include:
- Countercyclical Capital Buffer (CCyB): this ratio has been lowered twice by a total of 5 percentage point since October last year, releasing around HK$700-800 billion of lending capacity, enabling banks to provide more credit. In part as a result, the total loans granted by the banking sector increased by HK$192 billion during the five months from end-September 2019 to end-February 2020, and overall credit line granted by banks to SMEs in the fourth quarter of last year also grew by HK$6.9 billion.
- Deferral of Basel III requirements: the HKMA issued a guideline to banks in March this year, deferring the implementation of the various requirements under the Basel III framework so that banks can focus on addressing the challenges brought about by the coronavirus outbreak.
The HKMA pledges to continue to work closely with the banking industry to actively implement the above measures through the Banking Sector SME Lending Coordination Mechanism in response to the Covid-19 crisis.
