Hong Kong's Commercial Credit Reference Agency, which launches November 1, will provide an auditable source of information about the credit history of small and medium enterprises and make it easier for these SMEs to obtain financing.

In his latest Viewpoint column posted on the Monetary Authority homepage today, authority Chief Executive Joseph Yam said the experience of other financial centres such as the US and the UK shows that such an agency can help bridge the information gap between banks and SME borrowers.

"It can provide an auditable source of information about the overall indebtedness and credit history of SMEs to allow better credit assessment by banks. This in turn makes it easier for SMEs to borrow from banks and on more competitive terms."

A top employer

Mr Yam said SMEs account for over 98% of Hong Kong's business establishments providing jobs to over 1.3 million people, or about 60% of total employment (excluding the civil service). A thriving SME sector is thus vital to the city's economic growth.

"However, the economic significance of SMEs has so far not been fully reflected in the balance sheet of our banks. Furthermore, we often hear complaints from SMEs about the difficulties encountered in securing financing from banks. Some have said that banks have been overly conservative in lending to this sector and have placed too much reliance on collateral lending."

He said the agency's establishment comes at a time when the net interest margins of banks fell to a record low of 1.66% in June and the competitive pressure on banks to diversify their income source is growing.

SME lending a growth business

Mr Yam said the authority has noticed that most banks engaged in SME lending have reported double-digit growth in this line of business since the start of this year.

A number of banks have also indicated they are planning to substantially enlarge their SME lending team to secure a bigger market share.

"As a result, a greater variety of products have been offered to SMEs, from traditional overdraft and trade finance facilities to more sophisticated products, such as credit insurance and currency options.

"We are hopeful that, as the agency further develops and our financial system becomes more sophisticated, the perception that banks are too cautious in lending to SMEs will fade."