Small and medium enterprises form the bedrock of Hong Kong’s economy. The city is home to about 360,000 SMEs, which account for over 98% of the total number of enterprises and provide job opportunities to more than 1.2 million people.
Discussing the difficulties facing these enterprises amid a complex operating environment and slow economic recovery, Regina Lee, Head of Commercial Banking, and Thomas Shik, Chief Economist, Hang Seng Bank, delved into the various services that banks provide to address these issues.
A Challenging Environment
Shik said Hong Kong’s economy continues to recover, marked by an increase in visitor arrivals and a rebound in private consumption. While the economy is projected to grow by 2.8% in 2024, there are a few risks to take into consideration.
“One such risk is the prospect of elevated interest rates, particularly as the Federal Reserve keeps the pace slow to lower rates,” he explained. The uncertain external environment, including the slowdown in the growth of the US and European economies, geopolitical conflicts, as well as elections around the world, will also impact the global economy, and therefore Hong Kong’s external trade.
In this challenging environment, SMEs continue to face hurdles due to their limited resources and access to information as they attempt to benefit from the gradual revival of the economy. Access to funding is another significant factor holding back SME growth, as the options are limited primarily to bank loans. According to a survey by the Hong Kong Monetary Authority (HKMA) in February this year, one-third of the SMEs polled identified funding difficulties as a major challenge.
Empowering SMEs
In response to these issues, HKMA recently introduced nine measures to assist enterprises in obtaining financing from banks and to support their continuous development. In line with the Government’s commitment to SMEs, Hang Seng Bank launched the HK$33 billion SME Power Up Fund in late March. The scheme provides an array of diversified loan offerings to address the various financial requirements of SMEs. Designed to support growth, cross-boundary development and sustainable progression, it has received a positive response from enterprises.
Apart from providing funding, the bank has also introduced a series of measures to address the specific needs of SMEs and to facilitate their access to essential financing. One notable example is that the bank will consider accessing internal bank transaction records of existing clients to proceed with their loan applications. In this case, clients who bank with Hang Seng are not required to provide supporting documents, such as updated financial statements, as there are often delays of up to nine months due to the preparation and audit process.
“These financial statements reflect their financial performance during the economic recovery phase from the pandemic,” explained Lee. “Such a delay can potentially make their financial performance appear unfavourable, leading to loan rejections based on the banks’ standard credit guidelines. However, if their transaction records demonstrate a growing turnover, the bank will take this into consideration when approving the loan.”
By leveraging transaction records, the bank examines real-time data that showcases SMEs’ current performance and potential for growth, effectively overcoming the limitations of traditional financial statements.
Additionally, it also offers a digital platform where clients can apply for loans online. This not only makes the examination process more efficient but also enables quick responses.
Navigating Change
As the world undergoes significant changes in the post-pandemic era, the market is placing greater emphasis on technology and sustainability, among other factors. However, SMEs often face resource-related constraints, making it challenging for them to adapt to these changes, explained Shik.
As the largest local bank in Hong Kong, Hang Seng Bank possesses a comprehensive network of local businesses and extensive experience to support SMEs in their business development endeavours.
“We collaborated with a start-up that specializes in providing technology training programs. Many SMEs are interested in participating in the training courses within the scope of support provided by the Vocational Training Council,” said Lee. “However, they are hesitant due to the requirement of initially providing their own funding. Therefore, we proposed the use of transitional loans to fulfill their needs.”
This allows SMEs to initiate upgrading and transformation without affecting their cashflows. When the government subsidies are in place, they can repay the transitional loans, she explained.
GBA and Mainland Opportunities
Looking to the future, the development of the Greater Bay Area presents immense opportunities for SMEs in Hong Kong. This integration not only facilitates the expansion of Hong Kong's SMEs into the Mainland but also encourages Chinese companies to establish a presence in Hong Kong, which is a gateway city to international markets. In recent months, numerous food and beverage brands established in the Mainland have expressed their interest in expanding to Hong Kong.
Meanwhile, SMEs in Hong Kong have proactively sought collaboration opportunities and are providing management services to these Mainland brands. Hang Seng Bank has taken the initiative to facilitate cross-border business activities.
For example, it now supports digital ID verification and e-Sign services to cater to customers with cross-boundary banking needs, said Lee, adding that the bank would continue to collaborate with Hong Kong SMEs to help them seize future opportunities.
Doris Fung, dfung@chamber.org.hk