Loans to Hong Kong SMEs (small and medium enterprises) by HSBC in the first three quarters of 2010 increased 60 percent year-on-year, the bank said Monday.

Lena Chan, managing director and head of business banking at HSBC, said revenue from the SME business also rose 30 percent during the same period.

Chan forecast that the bank's loans to SMEs will still post double-digit growth in 2011, albeit with growth momentum mainly restricted due to external uncertainties. She also said HSBC aims at doubling its SME business by 2013 through the commitment of a HK$75 million investment and increasing the number of its SME centers to 24 from the current 12. In the first nine months of 2010, new SME clients increased by 51,000. HSBC now has a total of 366,000 SME clients.

According to Chan, the trade financing business increased 120 percent, contributing most to the segment's overall revenue growth. Trade finance is a banking service in which money is lent to exporters or importers in international trade.

Hong Kong government figures showed that imports in September were HK$304.67 billion, up 19.5 percent from a year ago. Over the same period, exports were HK$280.23 billion, up 24.1 percent year-on-year.

Looking to 2011, Chan said major challenges for Hong Kong SMEs will be the exchange rate and the flagging recovery in Europe and the US.

The Hong Kong dollar is pegged to the US dollar at an exchange rate of HK$7.8 per US dollar. And according to the International Monetary Fund's (IMF) 2010 Article IV Mission report on the Hong Kong economy released on November 18, monetary expansion in the US has had a significant effect on the city. As a result, the Hong Kong dollar monetary base has tripled in the past two years and there is abundant liquidity in the financial system. In nominal effective terms, the Hong Kong dollar has depreciated by 4 percent since the middle of this year, according to the IMF. A weak Hong Kong dollar will drive up the production cost to SMEs for imported materials.

Meanwhile, feeble consumption power in the West also weighs on the outlook for SMEs. Cliff Sun, chairman of the Federation of Hong Kong Industries, said at a November forum on SMEs that high unemployment rates in developed countries is dampening the willingness of consumers to spend, meaning that worries over future orders loom large.

The Hong Kong government launched a Special Loan Guarantee Scheme in November 2008 when global economic conditions were at their most grave. Under the scheme, the government said it would help SMEs to secure loans from participating banks by providing a guarantee of up to 80 percent.

As a participating bank, Chan said HSBC has approved a total of HK$28.8 billion worth of loans to over 9,300 SMEs from end of 2008 until the present.

Rita Lau, secretary for commerce and economic development, said in a written response to legislators on November 17 that more than 37,000 cases have been approved under the scheme, totalling HK$90 billion of loans so far. Lau said the scheme has benefited 20,000 firms, of which 95 percent are SMEs. The application period will end on December 31, 2010.

According to government figures as of December 2009, there were about 282,000 SMEs in Hong Kong, making up over 98 percent of the city's registered business units and accounting for 48 percent of private sector employment.

China Daily

(HK Edition 11/23/2010 page3)