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Author Archives: hksar gov

LCQ7: Financing of small and medium enterprises

     Following is a question by the Hon Chung Kwok-pan and a written reply by the Secretary for Commerce and Economic Development, Mr Edward Yau, in the Legislative Council today (February 26):
 
Question:
 
     Some persons-in-charge of small and medium enterprises (SMEs) have relayed that many SMEs, having been hit simultaneously by the slowdown of the global economy, the uncertainties of the external environment and the disturbances arising from the opposition to the proposed legislative amendments that have persisted for half a year, have tremendous business difficulties. Such SMEs urgently need liquidity to tide over the difficult times so as to avoid layoffs or closing down of business. Although the Financial Secretary extended in August last year both the application period of the 80% Guarantee Product under the SME Financing Guarantee Scheme (SFGS) and the validity period of the relevant enhancement measures to June 30, 2022, and the HKMC Insurance Limited (HKMCI) introduced in December last year a new 90% Guarantee Product under SFGS, the procedure for banks to vet and approve SME loan applications is complicated and time-consuming and the eligibility criteria are stringent (such as requiring applicants to put up their properties as collaterals and submit documentary proofs of their business turnovers). As such, bank loans have failed to serve the function of “providing timely relief”. In this connection, will the Government inform this Council:
 
(1) of the respective numbers of applications under SFGS received by HKMCI in the previous and the current financial years to date as well as the year-on-year percentage change of such applications, with a breakdown of the numbers of applications by loan amount and the type of industry to which the SME applicants belonged;
 
(2) of the respective numbers of the relevant applications received and approved by HKMCI since the launch of the 90% Guarantee Product, with a breakdown by the type of industry to which the SME applicants belonged; and
 
(3) whether it will discuss with the banking industry the simplification of the procedure for vetting and approval of SME loan applications and the relaxation of the application criteria, so as to resolve the financing difficulties encountered by SMEs?

Reply:
 
President,
 
     Small and medium enterprises (SMEs) are a major pillar of the Hong Kong economy. With the cash flow pressure faced by some SMEs under the current economic environment, the Government has been providing loan guarantee under the SME Financing Guarantee Scheme (SFGS) to assist SMEs in obtaining commercial loans, and has been introducing enhancements to the scheme as appropriate. Also, the Hong Kong Monetary Authority (HKMA) requires that banks provide funding support to SMEs as far as their credit policies and risk management principles allow.
 
     Having consulted the Financial Services and the Treasury Bureau, our reply to the three parts of the question is as follows:

(1) The HKMC Insurance Limited (HKMCI) administers the 80% Guarantee Product and the 90% Guarantee Product under its existing SFGS to respectively provide 80% and 90% loan guarantee for enterprises at concessionary fee rates.
 
     Since the launch of the 80% Guarantee Product in May 2012 and up to end January 2020, the HKMCI has received 19 510 applications and approved 17 475 of them, involving a total loan amount of about $73.1 billion and a total guarantee amount of about $58.5 billion.  The approval rate was 99.4 per cent (Note). The approved applications are mainly from enterprises of the trading, wholesale and retail sectors (accounting for about 55 per cent of the approved applications), the manufacturing sector (accounting for about 19 per cent of the approved applications), and the engineering and construction (accounting for about 7 per cent of the approved applications) sector, etc.
 
     The Government introduced three enhancement measures to the 80% Guarantee Product in November 2018, including reducing the guarantee fee by 50 per cent; increasing the maximum loan amount from $12 million to $15 million; and lengthening the maximum loan guarantee period from five years to seven years. Since then, we have seen a marked increase in the number of applications received and approved, as well as the amount of loans involved. Relevant figures are set out in the table below:
 
Applications Approved under the 80% Guarantee Product

  2018 2019 Increase
Number of Applications Received
 
1 932 2 965 +53%
Number of Applications Approved
 
 
By Sector
  • Trading, Wholesale and Retail
  • Manufacturing
  • Engineering and Construction
  • Others

By Loan Size
  • Over $10 million
  • $3 million to $10 million
  • Less than $3 million
1 714
 
               
 
          939
          215
          161
          399
 
 
          166
          626
          922
2 734
 
               
 
       1 469
          287
          286
          692
 
 
          339
       1 025
       1 370
+60%
 
               
 
       +56%
       +33%
       +78%
       +73%
 
 
       +104% 
       +64%
       +49%
Total Amount of Loans Involved for Approved Applications ($) 7.277 billion 13.772 billion +89%

(2) The 90% Guarantee Product was launched on December 16, 2019 and the market response is positive. As at end January 2020, the HKMCI has received 187 applications and approved 155 of them, involving a total loan amount of about $272 million and a total guarantee amount of about $245 million. The approval rate was 100 per cent (Note 1). The approved applications are mainly from enterprises of the trading, wholesale and retail sectors (72 cases, accounting for about 46 per cent of the approved applications) and the manufacturing sector (nine cases, accounting for about 6 per cent of the approved applications).
 
(3) To strengthen funding support to SMEs, the HKMA has established a banking sector SME lending co-ordination mechanism.  Three meetings were held in October 2019, January and February 2020 respectively under the co-ordination mechanism. The meetings were attended by representatives from the Hong Kong Association of Banks, major banks active in SME lending, and the HKMCI. Banks attending the meeting agreed to adopt a series of measures to strengthen support to SMEs. Key measures adopted by banks include making good use of the countercyclical capital buffer released by the HKMA to support SMEs; allowing SMEs to extend or reschedule their repayment period so as to relieve their cash flow pressure, having regard to the HKMA’s clarification of credit risk management requirements; introducing relief measures targeting specific sectors (such as the import and export and transportation sectors) to facilitate fund flow management by SMEs; and following the guidelines set out in the “Hong Kong Approach to Corporate Difficulties” to handle SMEs encountering financial difficulties with sympathy and enhanced communication, and to avoid withdrawing credit lines hastily or taking other credit actions that will adversely affect the customers’ business operations. 
 
     A number of banks have responded to the HKMA’s call by proposing various measures to help SMEs tide over this difficult time. The HKMCI and banks have also simplified the application procedures for the SFGS, such as by accepting other forms of financial proof in lieu of financial statements where appropriate. In view of possible changes to loan guarantee terms as necessitated by banks’ extension of loan tenors and trade financing repayment schedules, the HKMCI has streamlined procedures to expedite processing of bank applications for revision of loan terms.
 
     The HKMA, in collaboration with the HKMCI and banks, will also hold briefing sessions for SMEs to explain banks’ lending procedures and the SFGS. The HKMA, together with the banking sector, will continue to maintain close dialogue with the commercial sector with a view to providing appropriate support to SMEs and helping them cope with the economic challenges.
 
Note: Excluding cases withdrawn by participating lenders and applicants, and those under processing. read more

FS unveils $120 billion spending plan to support enterprises, safeguard jobs, stimulate the economy and relieve people’s burden

     The Financial Secretary, Mr Paul Chan, in his 2020-21 Budget today (February 26), announced a wide range of measures to help Hong Kong tackle the current economic difficulties and to support the community during challenging times by making optimal use of the fiscal reserves.
 
     “2019 was an unsettling year fraught with obstacles,” Mr Chan said.
 
     “Entering 2020, the rapid spread of the novel coronavirus has dealt a severe blow to economic activities and sentiment in Hong Kong.”
 
     Mr Chan said Hong Kong’s economy contracted by 1.2 per cent in 2019, and he forecast full-year growth of between -1.5 per cent and 0.5 per cent in 2020.
 
     “Therefore, I have decided to implement counter-cyclical measures of a massive scale involving above $120 billion so as to meet the public’s expectations as far as possible,” Mr Chan said.
 
     Mr Chan forecast a budget deficit of about $37.8 billion for the 2019-20 financial year, rising to about $139.1 billion in 2020-21. Fiscal reserves are expected to be $1,133.1 billion by March 31, 2020.
 
     “Although a record high deficit is envisaged in next year’s budget, I believe that only with such a budget can we help our community and local enterprises ride out their difficulties,” Mr Chan said.
 
     To stimulate the economy by boosting local consumption and relieve the financial burden on the community, Mr Chan announced a cash payout of $10,000 to Hong Kong permanent residents aged 18 or above.
 
     “This measure, which involves an expenditure of about $71 billion, is expected to benefit about 7 million people,” Mr Chan said.
    
     Additional relief measures include:
 
* Reducing salaries tax and tax under personal assessment for 2019-20 by 100 per cent, subject to a ceiling of $20,000. This will benefit 1.95 million taxpayers and reduce government revenue by $18.8 billion;
 
* Waiving rates for residential properties for four quarters of 2020-21, subject to a ceiling of $1,500 per quarter for each rateable property. This would involve about 2.93 million domestic properties and reduce government revenue by $13.3 billion;
 
* Providing an extra allowance to eligible social security recipients, equal to one month’s standard rate payment of Comprehensive Social Security Assistance, Old Age Allowance, Old Age Living Allowance or Disability Allowance. Similar arrangements will apply to recipients of the Work Incentive Transport Subsidy. This will involve an expenditure of about $4.225 billion;
 
* Paying one month’s rent for lower income tenants living in public rental units of the Hong Kong Housing Authority and the Hong Kong Housing Society, involving an expenditure of about $1.829 billion; and
 
* Paying the examination fees for school candidates sitting for the 2021 Hong Kong Diploma of Secondary Education Examination, involving an expenditure of about $150 million.
 
     To safeguard jobs and support enterprises, Mr Chan set aside a total of $18.3 billion to implement a raft of measures. They include:
 
* Introducing a concessionary, low-interest loan under the SME Financing Guarantee Scheme, under which a 100 per cent guarantee will be provided by the Government;
 
* Reducing profits tax for 2019-20 by 100 per cent, subject to a ceiling of $20,000. This will benefit 141 000 taxpayers and reduce government revenue by $2 billion;
 
* Waiving rates for non-domestic properties for four quarters of 2020-21, subject to a ceiling of $5,000 per quarter in the first two quarters and a ceiling of $1,500 per quarter in the remaining two quarters. This proposal is estimated to benefit 420 000 non-domestic properties and reduce government revenue by $3.2 billion;
 
* Waiving the business registration fees for 2020-21. This will benefit 1.5 million business operators and reduce government revenue by $3 billion;
 
* Waiving the registration fees for all annual returns (except for late delivery) charged by the Companies Registry for two years, benefiting about 1.4 million companies and reducing related revenue by about $212 million in total;
 
* Providing a subsidy to each eligible, non-domestic household account for four extra months to cover 75 per cent of their monthly billed electricity charges, subject to a monthly cap of $5,000 per account. This will involve an expenditure of about $2.9 billion;
 
* Waiving 75 per cent of water and sewage charges payable by non-domestic households for four extra months, subject to a monthly cap of $20,000 and $12,500, respectively, per household. This will reduce government revenue by $340 million;
 
* Providing a six-month rental subsidy to local recycling enterprises, involving expenditure of about $100 million;
 
* Reducing rental by 50 per cent for another six months for eligible tenants of government properties, government land and the EcoPark. This will reduce government revenue by $573 million;
 
* Reducing rentals and fees for eligible operators of properties covered by short-term waivers by 50 per cent for another six months. This will reduce government revenue by $265 million;
 
* Providing hirers of civic centres under the Leisure and Cultural Services Department with a 50 per cent reduction of hire charges for another six months. This will reduce government revenue by $23 million; and
 
* Offering another six months of fees and rent reduction for cruise lines and existing tenants of the Cruise Terminal. This will reduce government revenue by $18 million.
 
     The budget also allocates about $2.5 billion of additional expenditure to the Employees Retraining Board to increase the maximum amount of monthly allowance for trainees.
 
     “I am well aware that financial resources alone are not enough to tackle the challenges we are facing,” Mr Chan said.
 
     “However, making good use of fiscal reserves to support enterprises and relieve people’s hardship is certainly in line with our people’s expectations towards the Government under the current difficult environment.”  read more

LCQ8: Insurance premiums for taxis

     Following is a question by the Hon Frankie Yick and a written reply by the Secretary for Transport and Housing, Mr Frank Chan Fan, in the Legislative Council today (February 26):
 
Question:
 
     Some members of the taxi trade have relayed that the insurance premiums for taxis rose by nearly 50 per cent during the first nine months of last year, with comprehensive insurance premiums increasing to over $40,000 per annum and third party risks insurance (third party insurance) premiums increasing to over $30,000 per annum. They have also pointed out that currently the limited number of insurance companies operating insurance business for taxis has resulted in a lack of competition in the market, which has in turn caused an incessant rise in insurance premiums for taxis. Soaring insurance premiums, together with a drastic drop in the patronage for taxis over the past six months arising from the social movements, have caused business difficulties to the taxi trade. On the other hand, some insurance companies have indicated that due to the rampant illegal activities such as insurance frauds and champerty in recent years, the number of traffic accident claims and the compensation amounts have increased significantly, leading to the soaring insurance premiums for taxis. In this connection, will the Government inform this Council:
 
(1) whether it knows, in respect of the top five insurance companies which had the highest market shares in the taxi insurance market in each of the past five years, (i) the market shares achieved, (ii) the numbers of taxis insured, and (iii) the total premiums received, respectively by them each year;
 
(2) of the respective average amounts of comprehensive insurance premiums and third party insurance premiums for taxis, as well as the respective rates of changes of such premiums, in each of the past five years;
 
(3) of the respective numbers of suspected insurance frauds and champerty cases in respect of which the Police took the initiative to conduct investigations in the past five years; the relevant (i) number of prosecutions instituted, (ii) number of persons convicted and (iii) penalties imposed; the new measures put in place to step up efforts in combatting such illegal acts; and
 
(4) as third party insurance must be taken out for taxis before they are allowed to be used on roads, of the measures put in place by the Government to assist the taxi trade in addressing the problem of high and soaring insurance premiums?
 
Reply:
 
President,
 
     The consolidated reply, prepared in consultation with the Financial Services and Treasury Bureau, Security Bureau and Department of Justice, to the Hon Frankie Yick’s question is as follows:
 
(1) The total market shares, total number of taxis insured and total gross premiums received each year by the top five insurance companies which had the highest market shares in the taxi insurance market for the period between 2015 and the third quarter of 2019 are provided in the table below:
 

Year 2015 2016 2017 2018 First three quarters of 2019
Total market shares 99.9% 97.8% 96.7% 94.4% 95.9%
Total number of taxis insured 18,356 18,040 17,703 17,369 13,335
Total gross premium
(HK$ million)
407.1 400.7 400.2 397.2 322.2
 
(2) The respective average amounts of comprehensive insurance premiums and third party insurance premiums for taxis as well as the respective rates of changes of such premiums each year for the period between 2015 and the third quarter of 2019 are provided in the table below:
 
Year 2015 2016 2017 2018 First three quarters of 2019
Average comprehensive insurance premiums (HK$) 26,565 25,911 25,859 25,537 27,218
Comparison with same period in preceding year Not applicable -2.5% -0.2% -1.2% +6.9%
Average third party insurance premiums (HK$) 20,636 20,435 20,381 20,670 21,545
Comparison with same period in preceding year Not applicable -1.0% -0.3% +1.4% +4.2%

(3) Insurance fraud

     The number of insurance-related fraud cases according to Police’s records and the respective monetary loss between 2015 and the third quarter of 2019 are as follows:
 
Year 2015 2016 2017 2018 First three quarters of 2019
Number of cases 50 74 42 60 41
Monetary loss
(HK$ million)
3.0 8.1 5.4 9.1 6.5
 
     Depending on the circumstances, each individual case may involve “theft”, “fraud”, or “obtaining property by deception” under the Theft Ordinance (Cap. 210), and/or the common law offence of “conspiracy to defraud”, with maximum penalties of ten to 14 years of imprisonment. As insurance-related fraud is not itself a specified offence, the breakdown of prosecution, conviction and penalty figures cannot be provided.
 
     Police have been conducting professional investigations into insurance fraud, including the establishment of a task force under the Commercial Crime Bureau to monitor emerging trends of organised fraud cases, and conducting targeted investigation and analysis. Police have also maintained close contacts with other government departments, regulators (including the Insurance Authority), and stakeholders (such as the Hong Kong Federation of Insurers), while at the same time enhanced intelligence gathering for intelligence-led operations. On publicity and education, Police disseminate information on the latest modus operandi of various common fraud cases and anti-deception messages via different media platforms, including online platforms, “Police Report”, and traditional media. The Anti-Deception Coordination Centre’s “Anti-Scam Helpline 18222” provides 24-hour immediate assistance.
 
Champerty
 
     Between 2015 and the third quarter of 2019, there were two cases of champerty, where seven persons were prosecuted and none were convicted.
 
     Maintenance and champerty are common law offences and are punishable by a fine and up to seven years’ imprisonment. As in the past, the Government and the two legal professional bodies take the view that maintenance and champerty by recovery agents should be prohibited. Those injured at accidents who wish to pursue their legal claims should seek professional legal advice from or through solicitors or assistance from the Law Society of Hong Kong or the relevant government departments such as the Legal Aid Department, Labour Department and Social Welfare Department. On public education, the Government has been strengthening public awareness against such illegal acts through broadcasting of Announcements in the Public Interest on TV stations and radio stations. The newly-produced versions have been on air since May 2019 and uploaded onto the Government’s website for public viewing and listening.
 
(4) As evident from part (2) of the reply, the average third party insurance premiums per year for the period between 2015 and the third quarter of 2019 was generally stable, i.e. in the range of $20,381 per year and $21,545 per year.  Similar to other commercial services, insurance companies determine the level of premiums for individual commercial vehicles based on commercial principles by considering their underwriting risks (including the accident rate), claim factors, etc.
 
     In view of the serious impact caused by the current epidemic, the Government applied to the Finance Committee of the Legislative Council to set up the Anti-epidemic Fund last Friday, where such Fund would provide financial support to assist the transport sector in this difficult period. The Transport Department (TD) will implement the relevant measures as soon as practicable upon the establishment of the Fund. In addition, with the consent of MTR Corporation Limited, the TD has made short term monthly parking arrangements for taxis at the car park at Hong Kong West Kowloon Station of the Express Rail Link. The TD will continue to identify suitable sites for short term monthly parking of taxis (including the car park at the Hong Kong-Zhuhai-Macao Bridge Hong Kong Port), in order to tide the trade over the current difficulties. read more

LegCo Public Accounts Committee tables Report No. 73

The following is issued on behalf of the Legislative Council Secretariat:

     The Legislative Council (LegCo) Public Accounts Committee (PAC) tables Report No. 73 at the Council meeting today (February 26).

     The Report contains PAC’s conclusions and recommendations on two Chapters of the Director of Audit’s Report No. 73, namely, “Planning, provision and management of public toilets by the Food and Environmental Hygiene Department” and “Provision of consultancy, research and development and training services by the Hong Kong Productivity Council”.

     For the Chapter on the planning, provision and management of public toilets by the Food and Environmental Hygiene Department (FEHD), PAC stresses that public toilets with a clean and hygienic environment are important for the public uses, and it is more so essential when Hong Kong is fighting COVID-19. 

     PAC expresses serious concern that FEHD does not have a holistic planning with the necessary data, in particular the needs of the public, in the construction, reprovisioning and refurbishing of public toilets.  PAC also expresses serious concern and disappointment that FEHD had not conducted surveys to collect public views on public toilets and data on the utilization of public toilets since 2008.  FEHD has been urged to proactively conduct surveys and use reliable methods to collect public views so as to map out the policies and planning for the provision of public toilets.

     For the Chapter on the provision of consultancy, research and development and training services by the Hong Kong Productivity Council (HKPC), PAC finds it appalling and inexcusable that the deficiencies and irregularities of the HKPC management in respect of key performance indicators had adversely affected the public’s monitoring of HKPC’s work. 

     PAC also expresses dissatisfaction and finds it unacceptable that HKPC’s poor project and contract management had hampered its effective monitoring of the consultancy project progress and resulted in cost overruns. HKPC has been urged to closely monitor and regularly review the setting of its key performance indicators, as well as its performance against them with a view to using them as an effective means to enhance its management, governance, and accountability.

     The Government has also been urged to regularly keep in view the mode of operation, future business direction and subvention mode of HKPC having regard to the changing economic development of Hong Kong.

     The PAC Report No. 73, with details of the overall comments and recommendations made by PAC, is now available on the LegCo Website at www.legco.gov.hk/yr19-20/english/pac/reports/73/73_rpt.pdf. read more