Pre-approved Principal Payment Holiday Scheme for Corporate Customers

Our Ref: B1/15C
17 April 2020
The Chief Executive
All Authorized Institutions
Dear Sir / Madam,
Pre-approved Principal Payment Holiday Scheme for Corporate Customers The outbreak of COVID-19 has severely impacted Hong Kong’s economy and caused enormous financial strains to many small- and mid-sized corporates as their cash-flows have been disrupted by suspension of business operations, shipment delays, or cancellation of orders from customers. The impact has been large and sudden, resulting in many normally profitable corporates in need of financial assistance in order to avoid layoffs and other undesirable cutbacks. To provide immediate relief to small and medium corporates, the HKMA in consultation with the Banking Sector SME Lending Coordination Mechanism has developed a Pre-approved Principal Payment Holiday Scheme, in which participating institutions will pre-approve deferment of loan principal payments falling due between 1 May 2020 and 31 October 2020 of eligible small-to-mid-sized corporates for up to 6 months. All corporate borrowers that have an annual sales turnover of HK$800mn or less—estimated to cover more than 80% of all corporate borrowers in Hong Kong—and that have no outstanding loan payments overdue for more than 30 days are eligible for the Scheme. Applications by borrowers are not required so that financial relief can be provided to corporates in the timeliest manner. In accordance with the HKMA’s loan classification guidelines, deferments of principal payments under the Scheme will not by themselves render a loan account to be downgraded to a lower category. The terms of the Scheme are set out in the Annex. For the Scheme to be effective in tiding corporate borrowers over this difficult period, it is important that the Scheme has the full support of the whole industry. The HKMA therefore expects all AIs to participate in the Scheme under the same terms. All the 11 major lenders in the Banking Sector SME Lending Coordination Mechanism, which together account for over half of the total bank lending in Hong Kong, have confirmed their participation in the Scheme. AIs should ensure that they dedicate sufficient resources to implementing and operating the Scheme. They should begin informing eligible customers of the pre-approval under the Scheme before the end of April, with priority given to customers that have principal payments falling due soon after 1 May 2020. The notice should request eligible customers to contact the AI within 14 days so that details on the terms of the deferment can be confirmed.

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For corporate customers not currently covered by the Scheme or have payment falling due before 1 May 2020, the HKMA expects AIs to adopt a sympathetic stance and proactively reach out to those customers to understand whether they require similar assistance and assess, on a case-by-case basis, whether it is in line with established risk management principles to provide such arrangements. In the coming days, the HKMA will issue a list of frequently asked questions that pertain to the operations of the Scheme, and establish a hotline for corporate customers which wish to provide feedback on individual banks’ implementation of the Scheme. The HKMA believes that, with the concerted efforts of the banking industry, the impact brought by the COVID-19 outbreak can be better managed. If you have any questions about the Scheme, please approach your usual contact at the Banking Supervision Department. Yours faithfully, Arthur Yuen Deputy Chief Executive Encl.

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Annex
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Pre-approved Principal Payment Holiday Scheme for Corporate Customers
1) The Scheme To provide relief to corporate borrowers affected by the outbreak of COVID￾19, participating institutions will offer principal payment holiday to covered
corporate borrowers on a pre-approval basis.
2) Participating
institutions
All authorized institutions are expected to participate in the Scheme.
3) Covered
borrowers
Corporate borrowers which:
i. Have, on an entity basis, an annual sales turnover of HK$800mn or less,
based on their latest financial statements;
ii. have no outstanding payments payable to the participating institution
which have been overdue for more than 30 days at the Launch Date of the Scheme; and
iii. are not in the process of ceasing operations or declaring bankruptcy or
liquidation.
4) Payments covered All principal payments of bilateral loans falling due within 6 months from
the Launch Date of the Scheme to be made by a covered borrower to the participating institution. Syndicated loans and loans financing the purchase of shares and other financial assets are not covered by the Scheme.
5) Applicable
payment holiday
Six months beginning from the original due dates of the payments covered, except that
i. for trade facilities, the payment holiday period should be 90 days; and
ii. for facilities which are self-liquidating in nature, the participating
institution may require the loan to be settled when the underlying payment has been received by the covered borrower. In line with the above principle, for revolving facilities (e.g., corporate credit cards and overdraft lines) with facility limits that are due for review within 6 months from the Launch Date of the Scheme, the participating institution should either extend the review dates by 6 months or not adjust downward the existing facility limit within 6 months from the review dates.

Annex
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6) Processes to be
followed by participating institutions
Participating institutions should begin informing covered borrowers of the fact that they are covered by the Scheme within April, with priority given to customers that have principal payments falling due soon after the Launch Date. The notice should request covered borrowers to contact the bank within 14 days. Participating institutions should advise covered borrowers who responded to the notice the detailed terms of the pre-approved principal payment holiday and the financial implications arising therefrom. Participating institutions should ensure that they dedicate sufficient resources to implementing and operating the Scheme and that their staff are able to answer the enquiries of customers.
7) Supervisory
reporting treatment
In accordance with the HKMA’s existing loan classification guidelines, deferments of principal payment under the Scheme will not by themselves render the loan account to be downgraded to a lower category. The FAQs issued by the HKMA on 28 Oct 2019 and 9 Mar 2020 on Rescheduled Loans and Relief Measures for SMEs and Retail Clients apply to the Scheme.
8) Loans of covered
borrowers under the
SME Financing
Guarantee Scheme
(SFGS) and the SME
Loan Guarantee
Scheme (SGS)
Participating institutions are not required to seek prior written consent from the Hong Kong Mortgage Corporation Insurance Limited (“HKMCI”) or the Trade and Industry Department (TID) of the Hong Kong SAR Government before offering pre-approval to covered borrowers with loans under the SFGS and SGS, respectively. Participating institutions are required to inform the HKMCI and TID the revised principal payment terms of loans under the SFGS and the SGS, respectively, by monthly batches.
9) Launch Date 1 May 2020.
10) Borrowers not
covered by the Scheme
For corporate borrowers not covered by the Scheme, participating institutions should adopt an accommodative stance and proactively reach out to them to understand whether they require any financial assistance and assess on a case-by-case basis whether it is in line with established risk management principles to provide such assistance.