Europe's biggest lender said on Thursday that it would offer incentives to encourage the 340,000 small and medium-sized enterprises (SMEs) to borrow starting from Thursday, including a two-month interest rebate of up to HK$20,000 and several fee waivers for those applying for a loan before the end of November.

HSBC's offer comes after government officials have pushed lenders to support SMEs, the bedrock of the economy, through the coronavirus pandemic. Banks tend to focus on their largest clients, as they can sell them a range of financial products at scale.

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The Hong Kong Monetary Authority, the city's de facto central bank, in March instructed all banks to extend a loan repayment holiday for small businesses by another six months.

"Faced with the current economic downturn, SMEs are operating under tremendous pressure. A stable flow of credit is therefore particularly important to them," wrote Eddie Yue Wai-man, HKMA's chief executive in October in an article urging banks to help small business owners.

Hong Kong's economy posted 7.9 per cent growth in the first quarter, the biggest jump in quarterly growth in 11 years, the government reported last week. Policymakers hope that businesses will start to invest and expand again to keep the economic momentum growing, for that, they need capital.

"Millions of people globally have been vaccinated, which will help reduce infection cases. In addition, many landlords have cut rent by 20 or 30 per cent. These developments will encourage SMEs owners to consider expansion," said Peter Shiu Ka-fai, a lawmaker representing the wholesale and retail sector.

Under the Hong Kong government's definition, an SME is any manufacturing company that employs less than 100 people or non-manufacturing businesses hiring fewer than 50 employees. They constitute more than 98 per cent of business establishments and employ 45 per cent of Hong Kong's private sector workforce.

"With the roll-out of vaccines in Hong Kong and economic recovery looks set to accelerate in mid-2021, business owners must once again focus on growth," said Frank Fang, head of commercial banking of Hong Kong of HSBC.

However, some analysts and strategists believe many SMEs will remain cautious about borrowing.

"The current low-interest-rate environment means SMEs could borrow at a low cost. However, since the outbreak is not yet over, many SMEs will not be aggressive about borrowing a large amount of money to expand their businesses," said Kenny Ng Lai-yin, a strategist at Everbright Sun Hung Kai.

Hong Kong's banks approved 91,000 applications from companies and individuals for a loan repayment holiday on HK$800 billion worth of loans between May last year and March, meaning borrowers only had to pay interest and not the principal of the loan. As part of this scheme, HSBC offered a repayment holiday for borrowers on about HK$250 billion worth of loans.

Separately, the government offered a 100 per guarantee to banks lending to SMEs since April last year. Hong Kong's banks approved 33,394 cases and offered HK$53.76 billion of loans under this government-backed programme up until May 14. Among them, HSBC extended over HK$10 billion loans for SMEs.

HSBC's latest offer does not come with a government guarantee and it is the first time it has earmarked loans specifically for SMEs.

Besides the interest-rate rebate, other incentives include a 50 per cent reduction in transaction fees for new trade finance customers, two-month fee waiver for autoPay customers, and other deals for setting up new payment and business accounts.

"Hong Kong companies are increasingly capable of delivering innovation and higher-end manufacturing and services. In a post-Covid world, they need to turbocharge that growth with investments in technology and sustainability performance," said Diana Cesar, chief executive of Hong Kong of HSBC.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.