Hong Kong taxpayers may have to shoulder nearly HK$28 billion (US$3.57 billion) in bad loans from a now-defunct, fully government-backed financing scheme designed to help smaller enterprises survive the Covid pandemic.

Official data released to legislators showed that of the 67,189 loan applications approved under the special scheme, 13,231 had defaulted by the end of February, involving a total sum of HK$27.8 billion.

This translates to a default rate of 19.3 per cent.

As guarantor, the government would be responsible for repaying the defaulted amounts to participating lenders if the debts cannot be recovered.

Despite the 19.3 per cent bad loan proportion, the government said it was already better than the 25 per cent it originally expected, according to papers prepared by the Commerce and Economic Development Bureau.

At the centre of attention is the Special 100% Loan Guarantee, one of the products under the SME Financing Guarantee Scheme that was launched by the government in 2011 to help local small and medium-sized enterprises and non-listed businesses obtain financing.