Special lending program aids 307,000 SMEs

‘LIFESAVER’:
Over NT$500 billion in preferential rate loans helped cash-stressed companies to stay afloat during the pandemic, the central bank head said

• By Crystal Hsu / Staff reporter

A recently concluded special loan program provided a total of NT$503.58 billion (US$16.53 billion) in capital funding for 307,000 small and medium-sized enterprises (SMEs) affected by the COVID-19 pandemic, which was more effective than similar packages in other countries, central bank Governor Yang Chin-long (楊金龍) said yesterday.

Yang made the remarks during a public event to recognize lenders that participated in the program to help mitigate the pain inflicted by the pandemic.

The monetary policymaker spearheaded the lending program which offered preferential interest rates of between 1 percent and 1.5 percent from April 2020 to June this year when COVID-19 restrictions and infection fears wreaked havoc on retailers, restaurants, hotels and recreational facilities.

Loans to SMEs grew 12.3 percent during the pandemic, much higher than the 5.9 percent increase for overall lending, allowing cash-stressed companies to stay afloat and retain their staff, Yang said.

“In a way, the loans played a substantial role in stabilizing the job market and supporting GDP growth,” the governor said, citing the economy’s expansion of 6.57 percent last year — an 11-year high — and 3.38 percent in the first half of this year, despite rising uncertainty.

The impressive economic showing gave the central bank the confidence to end the lending program and embark on monetary tightening to tame inflation.

Altogether, the number of workers hired by service-oriented sectors tumbled to 6.73 million at the height of the pandemic, but climbed to 6.81 million in June, Yang said.

Over the same period, people affected by furloughs and fewer working hours dropped from 56,000 to 21,000, he said.

To serve a maximum number of borrowers, the central bank made 15 adjustments to include cooperatives, fishers’ associations and farmers’ associations in the aid program and expand the loan scale from the original N$200 billion to NT$400 billion, Yang said.

While most US corporations raise fund through bond issuance and listings, domestic SMEs rely heavily on indirect financing — namely loans from banking institutions — for working capital, Yang said.

Indirect financing served 52 percent of SMEs and 63 percent of small businesses, whereas only 39 percent of large-cap companies needed capital injections, Yang said, adding that the special loans were a lifesaver during the pandemic.

The US introduced a similar Main Street Lending Program, but the loan granted accounted for only 3 percent of the total amount available due to high interest rate charges and low participation among lenders, he said.

The special loan program proceeded smoothly without raising bad loans and won approval from Fitch Ratings, Yang said.