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Supporting enterprises, safeguarding jobs

In just a week, the number of confirmed COVID-19 cases around the world doubled from the level of some 600 000 to over 1 million, with more than half of the cases identified in the US and Europe. The rapid spread of the virus not only put great pressure on healthcare system, but also dealt a severe blow to the Western economies, subsequently hitting the Asian region’s export as well as the global economy. The employment-related figures of the US and European region released last week are particularly weak. For instance, the non-farm payrolls in the US decreased by 700 000 last week, which is the first-time decrease over the last 9.5 years. The number of initial jobless claims released last week surged by a double to more than 6 million, deepening the market’s worries.

With a view to contain the pandemic, many places around the world has required their people to maintain social distancing and minimise the flows of people, which in turn has brought most of the business activities to a halt. For many Hong Kong companies, as more overseas clients failing to make outstanding payments, refusing to receive ordered goods, or even cancelling orders, they are now facing the difficulties in cash flow.

To contain the spread of virus, members of public should follow the Government‘s advice on reducing gathering.

In fact, the pandemic is now affecting almost all sectors in the economy, and not just individual sectors like retail and tourism. As such, the Government’s strategy in providing reliefs has to be changed. Instead of focusing on specific sectors, we need to cover all enterprises and address their critical pain points.

Companies in Hong Kong are now facing financial pressure from three aspects, (1) wages, (2) rental expenses and (3) difficulties in cash flow due to the sudden drop in businesses. For those with difficulties in paying wages and the subsequent pressure on pay-cut and layoff, we are now deriving new measures under the Anti-epidemic Fund. As for rental expenses, it is the moment for property owners, particularly major developers, to shoulder more social responsibility and respond more positively to the strong demand from the community on rent reduction in the past months.

For the problem of cash flow, we need to leverage the resources and power of the market for a more effective outcome. Since last August, the Government has enhanced or launched government-guaranteed loan products with guarantee coverage of 80%, 90% and 100% respectively. These products can leverage on the capital, professional knowledge and experience of the banking industry to provide SMEs with loans of different sizes*. In particular, the latest 100% guarantee product will provide concessionary low-interest loan. In our recent communications with the trade, we understand that the demand for financing has been growing across the market under the weak economic situation, and the demand is not limited to SMEs. We are now revisiting our current schemes along this direction.

Since the outbreak of the pandemic, I have invited the Hong Kong Monetary Authority (HKMA) to establish a lending coordination mechanism with the banks and associations and representatives of the trade in order to mobilise the industry to provide more effective support to SMEs. Some progress has been made so far. For instance, to assist individual company, banks will consider automatically offering extensions of loan tenor or principal repayment holidays to qualified SMEs without requiring them to make an application. Also, as the import and export and manufacturing sectors are now facing cash-flow pressure due to delays in shipments, banks will consider further extending the repayment period of trade financing facilities and allowing more customers to apply to convert trade financing lines into temporary overdraft facilities so that customers can manage their cash flow more flexibly. Hard-hit sectors such as transportation, import and export, retail and tourism will be able to benefit from these measures. As for personal customers, as at end March, banks have approved 2 800 principal repayment holidays for residential mortgages and emergency loans, amounting to over $8 billion.

On the macro-level, to ensure sufficient money supply, in recent months HKMA has lowered the Countercyclical Capital Buffer (CCyB) ratio and the level of regulatory reserves, further releasing around $700 billion of lending capacity in total, enabling banks to provide more credit. In addition, HKMA has arranged lending US dollar to local banks, as well as other measures, to provide more liquidity to our banking system.

Last week, the Government has stepped up anti-epidemic measures and further regulated the operation of various premises. Your understanding and co-operation are important.

With the pandemic getting worse and the economy under greater strain, the economic outlook is full of uncertainty. Recovery will depend on the progress of anti-pandemic efforts around the world. And consumer and investor pessimism will also put greater stress on the already weak economy. Based on the latest situation, it is unlikely that the economy will turnaround in the coming six months, hence enterprises and individuals should make early preparation and contingency planning for their operation and financial arrangement.

The Government is devising more support measures to provide reliefs to address the economic challenges brought by the pandemic, with a view to supporting the enterprises and safeguarding jobs.

The COVID-19 pandemic has brought an unprecedented threat to the global economy. In order to maintain people’s confidence, ensure sufficient liquidity in the market and avoid the waves of bankruptcy, Governments across the globe have implemented aggressive fiscal and monetary policies also of unprecedented scale. From past experience, these policies would help stabilise the economy and facilitate its rebound. Nonetheless, the market is expected to remain volatile in the coming future, and the above policies may trigger other side effects in the long run. We need to stay vigilant and take precautions against risks.

*Remark: Under the latest SME Financing Guarantee Scheme, the loan products provided include Government guarantee coverage of 80%, 90% and 100% (to be rolled out this month), with the maximum facility amount of $15 million, $6 million and $2 million respectively.

April 5, 2020