Financial institutions insisted in the Legislative Council (LegCo) yesterday that they have given support to small and medium-sized enterprises (SMEs), but business groups are painting a contradictory picture.

Speaking at a meeting of the LegCo Commerce and Industry Panel meeting, the banks said they will support the government's newly announced special loan-guarantee plan.

Fubon Bank (Hong Kong) Senior Vice President and Deputy Head of SME division Lawrence Chan said their SME loans have increased by 30 percent over the past few years.

"I think we will support SMEs more with the government guarantee," he said.

Hang Seng Bank Assistant General Manager Thomas Tsui said the bank has approved more business loans this year and has particularly taken care of the interest of existing clients.

But Tsui added that the banks need to be prudent when awarding loans during such tough financial times.

"We need to be cautious when dealing with new customers and need to think about the reasons why the banks that have been used by these customers have stopped giving support," Tsui said.

HSBC Commercial Banking Senior Executive Nixon Chan said the banks need to be responsible to investors and the government.

However, business representatives attending the meeting said they did not see credit easing, as the banks claimed. Instead, the representatives said, the banks have adopted a more stringent loan-approval process and increased their interest rates.

Association for Hong Kong Catering Services Management President Poon Kuen-fai said the banks stopped approving loans shortly after the emergence of the financial tsunami.

A document submitted by the government to the panel revealed that the banks approved just 35 out of 86 applications received for the SME Loan Guarantee Scheme from Nov 6-27.

The banks cited insufficient information attached to applications and applicants' weak financial statuses as reasons for loan rejections.

The government earlier announced plans for a HK$10 billion SME loan plan, under which the government provides 70 percent of the guarantee on the loans.

Secretary for Commerce and Economic Development Rita Lau said the plan will be rolled out soon.

Civic Party lawmaker Ronny Tong suggested the government increase the loan guarantee to 100 percent for the SMEs, putting all the onus on taxpayers to bail out banks if SMEs default on their loans.

The Democratic Party's Emily Lau told the government to urge banks to relax their SME credit policy.

Financial Secretary John Tsang said banks did not lend less money in the first three quarters than the same period last year, but he would encourage banks to relax the credit line to maintain the economic dynamics.

(HK Edition 12/02/2008 page1)