The government will implement a batch of measures to help enterprises weather the anticipated impact of external economic woes, including guaranteeing business loans for local small and medium enterprises (SMEs) of up to HK$100 billion.

Under the 2012-13 budget, the government will introduce refinements toward the existing SME Financing Guarantee Scheme by enhancing the maximum loan guarantee ratio from the current 70 percent to 80 percent. The government pledged that it will provide a guarantee commitment of HK$100 billion.

The government estimated that by raising the maximum loan guarantee ratio, it can help slash the guarantee fees payment paid by SMEs by 70 percent. The concessionary scheme will be open for application for nine months starting in April this year.

“The increase in loan guarantee ratio will enhance lending institutions’ confidence in offering loans to SMEs and hence reduce their burdens. We consider that a limited guarantee fee by the government will ensure appropriate risk sharing among lending institutions, enterprises and the government,” Financial Secretary John Tsang said in the Wednesday budget speech.

The government estimated that it may spend approximately HK$11 billion in the refined SME Financing Guarantee Scheme by projecting a 12 percent loan default rate.

“The refined SME Financing Guarantee Scheme will help ease companies’ cash flow constraints and improve the city’s competitiveness,” Hong Kong General Chamber of Commerce Chairman Anthony Wu said in its statement.

“The refined SME Financing Guarantee Scheme will be useful for local SMEs to withstand the possible economic turmoil in 2012,” said Jimmy Ng, vice president of the Chinese Manufacturers’ Association of Hong Kong. “However, we hope that the government can introduce more measures to help local manufacturers for industry transformation and brand building.”

CPA Australia Corporate Finance Group Co-Chairperson Patrick Yeung doubted the refined scheme’s effectiveness. “Whether the refined measures will help depends on the external macroeconomic environment that induces enterprises to ask for more loans.”

To further assist SMEs, the Hong Kong Export Credit Insurance Corporation (ECIC) will introduce new terms in their insurance policy that will allow SME policyholders to insure their exports only for places and buyers of their choice under specified circumstances. They will also be offered a 10 percent premium discount if the export markets of the SME policyholders originated in emerging markets.

oswald@chinadailyhk.com