The government announced Wednesday that the application period for the Special Loan Guarantee Scheme (SpGS) would be extended for another six months to end-December, for the last time, in a bid to help SMEs consolidate their businesses during the early stage of economic recovery.

All the features of the scheme will remain unchanged, the government said in a statement.

"In recent months, the economic situation in Hong Kong has shown significant improvement and the problem of a credit crunch has also been largely relieved. It should be an opportune time to let the credit market gradually resume its normal operation. Nevertheless, considering that companies may need some lead time to consolidate their business during the early stage of recovery, the government has decided to extend the SpGS for another six months until the end of this year, for the last time," a government spokesperson said.

The government launched the scheme in December 2008 to provide an 80-percent guarantee for commercial loans granted by participating lending institutions (PLIs) to eligible small and medium enterprises (SMEs) as part of its relief measures aimed at helping SMEs with their liquidity problems during the global financial crisis.

The application period for the scheme was previously extended twice by the government .

The government's move to dismantle the scheme by the end of this year is "appropriate", said Albert Lau, vice-chairman of the Hong Kong Small & Medium Enterprises General Association (HKSMEGA).

"The need for this scheme is less imperative now than previously," he told China Daily.

As economic conditions have basically returned to normal, another six-month extension will provide an adequate buffer against any potential credit crunch that could be triggered by unexpected events, he said.

"Keeping the scheme for an extended period could cause moral hazards," he said.

Banks, which face less credit risk as a result of the 80-percent guarantee by the government, may abuse the scheme by lending out their money too easily, he explained.

Meanwhile, enterprises, particularly those that are incapable of survival under normal operating conditions, may find a way to hang on, he added.

The Trade and Industry Department (TID) will stop receiving new SpGS applications from the participating lending institutions (PLIs) from January 1, 2011, the government said.

However, the existing SME Loan Guarantee Scheme will continue to provide assistance to SMEs to help them obtain loans from the PLIs.

The TDI has approved 30,668 applications under the SpGS, involving a total loan amount of over HK$74 billion, benefiting over 17,000 enterprises in both manufacturing and non-manufacturing sectors, 95 percent of which are SMEs.

The scheme has helped stabilize about 300,000 jobs, contributing positively to "supporting enterprises and preserving employment", the government said.

Under the SpGS, the government provides a total loan guarantee commitment of HK$100 billion. The maximum loan amount for each enterprise is HK$12 million, of which up to HK$6 million can be used for revolving credit facilities.

China Daily

(HK Edition 04/22/2010 page2)