HONG KONG MONETARY AUTHORITY: Briefing to the Legislative Council Panel on Financial Affairs 5 November 2001 HONG KONG MONETARY AUTHORITY


DISCUSSION TOPICS: DISCUSSION TOPICS Currency Banking Financial Infrastructure Exchange Fund 2


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


CURRENCY STABILITY - RISKS: General Risks Global recession Economic weakness in Asia Financial market volatility Exchange rate volatility Pressure on regional currencies CURRENCY STABILITY - RISKS 4


CURRENCY STABILITY - RISKS: CURRENCY STABILITY - RISKS 5 Hong Kong Specific Risks Currency board of Argentina Hong Kong markets used for proxy hedge against Asian risks RMB exchange rate policy Public finances in Hong Kong Support for and confidence in the Link


CURRENCY - MARKET EXPECTATIONS: CURRENCY - MARKET EXPECTATIONS 12-month forward points 1997 1998 1999 2000 2001 6


CURRENCY - MARKET EXPECTATIONS: CURRENCY - MARKET EXPECTATIONS 12-month forward points 2000 2001 7


BANKING STABILITY - FACTS: BANKING STABILITY - FACTS Capital adequacy ratio ^ : 18.0% Liquidity ratio ^ : 45-55% Net interest margin ^ : 2.17% Classified loans ^ : 6.81% Mortgage delinquency ratio “ : 1.28% Credit card receivables - delinquency ratio “ : 1.13% - charge-off ratio  : 4.75% Growth of total Hong Kong dollar deposits * : 0.3% Growth of total domestic lending * : - 1.7% ^ Figure as at end-June 2001 “ Figure for September 2001  Figure for the September 2001 quarter * Quarterly change between September and June 2001 8


BANKING - REFORM MEASURES: BANKING - REFORM MEASURES Interest Rate Deregulation Commercial Credit Reference Agency Deposit Insurance Scheme Banking Consolidation Three-building Condition Consumer Protection 9


BANKING - CURRENT ISSUES: BANKING - CURRENT ISSUES Terrorist Financing / Money Laundering Negative equity Bankruptcies New Capital Accord Banking (Amendment) Bill 2000 Banking (Amendment) Bill 2001 10


FINANCIAL INFRASTRUCTURE: FINANCIAL INFRASTRUCTURE Functioning smoothly Hong Kong’s payment systems continued to function smoothly in the aftermath of 11 Sept The event highlights the importance of Hong Kong’s US dollar clearing system in the reduction and diversification of risks We will encourage greater usage of the US dollar clearing system 11


FINANCIAL INFRASTRUCTURE: FINANCIAL INFRASTRUCTURE Projects Upgrade of CMU into an International Central Securities Depository (ICSD) Money settlement for CCASS items Joint cheque clearing with Mainland cities Development of the retail bond market through Hong Kong Mortgage Corporation debt issues 12


FINANCIAL INFRASTRUCTURE: FINANCIAL INFRASTRUCTURE Retail Payment Systems Review : results indicate that Hong Kong’s retail payment systems function well Recommendations on : cash, cheques, credit and debit cards, stored value cards, and e-payment and e-legal tender Progressive approach to improve regulatory oversight for stability, efficiency and competitiveness of Hong Kong’s retail payment systems 13


EXCHANGE FUND BALANCE SHEET: EXCHANGE FUND BALANCE SHEET (HK$ million) 31 Dec 2000 31 Mar 2001 30 Sept 2001 ASSETS Foreign currency assets 856,680 911,880 901,312 Hong Kong dollar assets 166,683 131,883 90,921 Total Assets 1,023,363 1,043,763 992,233 LIABILITIES AND ACCUMULATED SURPLUS Monetary base* 215,140 216,469 231,858 Placements by other Hong Kong Special Administrative Region government funds 417,162 439,228 381,342 Placements by other institutions 45,049 81,853 69,253 Other liabilities 38,913 10,315 13,528 Total Liabilities 716,264 747,865 695,981 Accumulated surplus 307,099 295,898 296,252 Total liabilities and accumulated surplus 1,023,363 1,043,763 992,233 * The monetary base includes interest payable on Exchange Fund Notes and net accounts receivable which are not included here. 14


EXCHANGE FUND PERFORMANCE: EXCHANGE FUND PERFORMANCE 2000 2001 2001 2001 (HK$ billion) Full year Jan-Mar Apr-Sep Jan-Sep Gain / (Loss) on HK equities* (7.3) (20.4) (19.6) (40.0) Exchange gain / (loss) (11.2) (11.8) 5.4 (6.4) Total return on bonds, etc 63.6 17.6 22.6 40.2 Investment income 45.1 (14.6) 8.4 (6.2) Other income 0.2 0.1 0.1 0.2 Interest and expenses (11.0) (2.8) (5.1) (7.9) Net investment income 34.3 (17.3) 3.4 (13.9) Treasury’s share (18.1) 6.1 (3.0) 3.1 Increase / (decrease) in EF accumulated surplus 16.2 (11.2) 0.4 (10.8) * including dividends 15


EXCHANGE FUND - HK Equity Portfolio: EXCHANGE FUND - HK Equity Portfolio (HK$ billion) Investment in August 1998 118.1 Income from Disposal and Dividends (end-Sep 2001) 138.4 Size of remaining portfolio (end-Sep 2001) 74.2 Disposal 24.6 Long Term Investment * 49.6 * Including HK equities transferred from the Land Fund in 1998 (valued at HK$9 billion in 1998) 16


HONG KONG MONETARY AUTHORITY: Briefing to the Legislative Council Panel on Financial Affairs 5 November 2001 HONG KONG MONETARY AUTHORITY 17