HONG KONG MONETARY AUTHORITY: Briefing to the Legislative Council Panel on Financial Affairs 3 May 2001 HONG KONG MONETARY AUTHORITY


DISCUSSION TOPICS: DISCUSSION TOPICS Annual Report 2000 Latest Developments Currency Banking Financial Infrastructure Exchange Fund Management Banking Consumer Issues 2


CURRENCY - Exchange Rate: 1999 2000 CURRENCY - Exchange Rate HK - US interest rate differential (1 month) (RHS) Exchange rate (LHS) 1998 2001 3


CURRENCY - Vulnerabilities: Risks from globalisation persist Economic and financial market adjustments in US Uncertain economic outlook in Japan and yen weakness Problems in emerging markets Structural weakness in other Asian financial systems Mainland adjustments to WTO and political situation Use of Hong Kong markets for proxy hedge CURRENCY - Vulnerabilities 4


CURRENCY - Vulnerabilities: CURRENCY - Vulnerabilities Risks from globalisation persist Economic and financial market adjustments in US Uncertain economic outlook in Japan and yen weakness Problems in emerging markets Structural weakness in other Asian financial systems Mainland adjustments to WTO and political situation Use of Hong Kong markets for proxy hedge


CURRENCY - Vulnerabilities: CURRENCY - Vulnerabilities 12-month forward points 1997 1998 1999 2000 2001 5


CURRENCY - Vulnerabilities: CURRENCY - Vulnerabilities 12-month forward points 2000 2001 6


BANKING - Reform Measures: BANKING - Reform Measures Commercial Credit Reference Agency Interest Rate Deregulation Consolidation Code of Banking Practice Deposit Protection 7


BANKING - Reform Measures: BANKING - Reform Measures Commercial Credit Reference Agency Interest Rate Deregulation Consolidation Code of Banking Practice Deposit Protection


BANKING - Reform Measures: BANKING - Reform Measures Deposit Protection Approved in principle by ExCo Preliminary views on design features:  Cover all licensed banks  Mandatory participation  Coverage Cap at HK$100,000  Ex-ante funding preferred  Risk-based premium to be further explored  Separate legal entity Subject to further study and consultation 8


BANKING - Draft Legislation: Banking (Amendment) Bill 2000  being examined by the Bills Committee Banking (Amendment) Bill 2001  introduced in the Legislative Council BANKING - Draft Legislation 9


FINANCIAL INFRASTRUCTURE: FINANCIAL INFRASTRUCTURE US$ Million US Dollar Clearing System Daily Average Turnover 10


FINANCIAL INFRASTRUCTURE: FINANCIAL INFRASTRUCTURE Internal review on the provision of retail payment services  Efficiency, pricing, competition, consumer protection, regulatory framework and systemic implications Making good progress. Expect to be completed shortly. Retail Payments 11


EXCHANGE FUND PERFORMANCE: EXCHANGE FUND PERFORMANCE 1999 2000 2001 Q1 April 2001 (HK$ bn) (HK$ bn) (HK$ bn) (HK$ bn) Gain/(Loss) on HK equities 90.1 (11.6) (21.5) 3.9 Exchange gain/(loss) (9.9) (11.2) (11.8) 3.2 Total return on bonds etc 23.6 67.9 18.8 (2.1) Investment income 103.8 45.1 (14.5) 5.0 Other income 0.2 0.2 0.0 0.0 Interest and expenses (10.0) (11.0) (2.8) (0.6) Net investment income 94.0 34.3 (17.3) 4.4 Treasury’s share (45.4) (18.1) 6.1 (2.0) Increase/decrease in EF accumulated surplus 48.6 16.2 (11.2) 2.4 12


EXCHANGE FUND - HK Equity Portfolio: EXCHANGE FUND - HK Equity Portfolio (HK$ bn) Investment in August 1998 118.1 Income from Disposal and Dividends 126.1 Size of remaining portfolio (end-April 2001) 110.9 Disposal 60.9 Long Term Investment * 50.0 * Including HK equities transferred from the Land Fund in 1998 (valued at HK$9 bn in 1998) 13


BANKING CONSUMER ISSUES: BANKING CONSUMER ISSUES Increasing focus on how to address banking consumer protection HKMA has no explicit role in consumer protection under the Banking Ordinance A comparative study of banking consumer protection arrangements completed Report on this comparative study sent to Financial Services Bureau and the Legislative Council Financial Affairs Panel Welcome advice on the way forward 14


BANKING CONSUMER ISSUES: BANKING CONSUMER ISSUES HIGHLIGHTS OF FINDINGS OF STUDY (I) 15


BANKING CONSUMER ISSUES: BANKING CONSUMER ISSUES HIGHLIGHTS OF FINDINGS OF STUDY (I)


BANKING CONSUMER ISSUES: BANKING CONSUMER ISSUES HIGHLIGHTS OF FINDINGS OF STUDY (II) 16


BANKING CONSUMER ISSUES: BANKING CONSUMER ISSUES HIGHLIGHTS OF FINDINGS OF STUDY (II)


BANKING CONSUMER ISSUES: BANKING CONSUMER ISSUES HIGHLIGHTS OF FINDINGS OF STUDY (III) 17


BANKING CONSUMER ISSUES: BANKING CONSUMER ISSUES Way Forward Report only highlights gaps, not policy recommendations HKMA and the Government will now proceed to consider the policy implications, including -  whether any change to the existing arrangements is needed;  if so, what should be done;  how should these be achieved; and  who should do what. HKMA is open-minded on whether it should have a more explicit role Will need to consult further and more widely on any policy recommendations 18


HONG KONG MONETARY AUTHORITY: Briefing to the Legislative Council Panel on Financial Affairs 3 May 2001 HONG KONG MONETARY AUTHORITY 19