Banks need more government help to backstop SMEs' finance needs: HSBC co-CEO

Banks need better government backing to support the financing needs of small and medium-sized enterprises (SMEs), particularly during difficult economic times, according to HSBC's co-CEO for the Asia-Pacific region.

"The operations of the government financing guarantee agencies need to be further improved, such as promoting the collaboration of guarantee agencies at all levels, improving the re-guarantee mechanism and enhancing the efficiency of risk-compensation funds," David Liao said.

If the government can provide credit and guarantee to cover risks, then banks like HSBC can be more flexible in giving loans to SMEs, he said during a panel discussion about financial inclusivity at the Lujiazui financial forum in Shanghai on Thursday.

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SMEs represent more than 90 per cent of all businesses in China, according to the government, contributing more than 60 per cent of gross domestic product, more than 50 per cent of tax revenues, 80 per cent of employment and 70 per cent of innovation.

China's SMEs have "yet to display a strong trend of rebound" despite showing slight improvement in business sentiment in March, according to the CKGSB Business Conditions Index, an independent survey by the Cheung Kong Graduate School of Business.

In Hong Kong, confidence among SMEs improved slightly in April, but remained well below a year earlier when it soared on the back of the border reopening, according to a survey from the Hong Kong Productivity Council.

China has a thriving SME environment, but it is facing challenges such as the complexity of cross-border trade, Standard Chartered CEO Bill Winters said in the same discussion.

Getting access to trade finance is "complex but vital" for a prosperous SME ecosystem, he said.

Standard Chartered is hoping digital technology and blockchain innovation can help support SMEs and facilitate cross-border transactions, connecting SMEs with the global supply chain.

The bank has partnered with an unnamed Chinese tech company to develop a blockchain-enabled digital token to enhance the safety of supply-chain financing.

Meanwhile, China's innovative digital banking system has opened opportunities for banks to use big data to assess the worthiness of granting loans to small businesses.

"China has been very effective at using digital technologies to support financial inclusion," said Richard Cantor, vice-chairman at Moody's Global. "That is, to deliver payment services to expand investment options and to extend credit to previously underserved households and businesses. In particular, China has made notable strides in encouraging digital transactions."

HSBC Asia Pacific Co-CEO David Liao is pictured at HSBC Headquarter in Central on December 7, 2023. Photo: Yik Yeung-man alt=HSBC Asia Pacific Co-CEO David Liao is pictured at HSBC Headquarter in Central on December 7, 2023. Photo: Yik Yeung-man>

Data accumulated through the e-commerce ecosystem now makes it possible to lend to small businesses that have very limited access to the formal banking system.

"Prior to the advent of digital finance, an assessment of a firm's credit worthiness was always based on its profitability track record, or the value of its assets that it could pledge as collateral," Cantor said. "But by using big data and machine learning, big tech firms can now assess creditworthiness based simply on transaction data."

The two-day forum has drawn about 70 speakers and officials from institutions including the People's Bank of China, Hong Kong's Financial Services and the Treasury Bureau and the Monetary Authority of Singapore.

At the event, China's top financial industry officials said Beijing will press on with reforms to continue to open up to the outside world and fulfil the country's ambition to become a financial powerhouse.

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 © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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