Briefing to the Legislative CouncilBriefing to the Legislative Council
Panel on Financial AffairsPanel on Financial Affairs
4 February 20024 February 2002
HONG KONG MONETARY AUTHORITYHONG KONG MONETARY AUTHORITY
DISCUSSION TOPICSDISCUSSION TOPICS
• Currency
• Banking
• Financial Infrastructure
• Exchange Fund
2
CURRENCY STABILITY - FACTSCURRENCY STABILITY - FACTS
7.60
7.65
7.70
7.75
7.80
7.85
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan
HK$ / US$
-200
0
200
400
600
800
1000
1200
1400
1600
1800
b.p.
1999 2000 1998 2001
HK - US interest rate differential (1 month) (RHS)
Exchange rate (LHS)
3
• Yen weakness and implications for regional currencies and RMB exchange rate
• Debt crisis in Argentina
• Hong Kong markets used as proxy hedge against Asian risks
• Public finances in Hong Kong
• Support for, and confidence, in the Link
CURRENCY STABILITY - RISKSCURRENCY STABILITY - RISKS
4
-1,000
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan
pips
12-month Hong Kong dollar forward points
1997 1998 1999 2000 2001
CURRENCY CURRENCY - MARKET EXPECTATIONS- MARKET EXPECTATIONS
5
CURRENCYCURRENCY - MARKET EXPECTATIONS - MARKET EXPECTATIONS
-300
-200
-100
0
100
200
300
400
500
Jan-2001
Feb-2001
Mar-2001
Apr-2001
May-2001
Jun-2001
Jul-2001
Aug-2001
Sep-2001
Oct-2001
Nov-2001
Dec-2001
Jan-2002
pips
-200
-100
0
100
200
300
400
500pips12-month Hong Kong dollar forward points
Sino-US tensions / yen
Argentina / rumoursabout the Link
Argentina / yen
6
CURRENCY CURRENCY - RISKS OF YEN WEAKNESS- RISKS OF YEN WEAKNESS
80
85
90
95
100
105
110
115
120
125
130
135
Sep Oct Nov Dec Jan
1 Sep 2001=100
80
85
90
95
100
105
110
115
120
125
130
135
Thai baht Philippine peso
Indonesian rupiah Korean won
Japanese yen
20017
CURRENCY - MARKET EXPECTATIONS ON RMBCURRENCY - MARKET EXPECTATIONS ON RMB
-500
0
500
1000
1500
2000
2500
3000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
pips
-500
0
500
1000
1500
2000
2500
3000pips
RMB 12-month forward
HK dollar 12-month forward
2001 8
CURRENCY - RISKS OF ARGENTINEAN DEBT CRISISCURRENCY - RISKS OF ARGENTINEAN DEBT CRISIS
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
pips
12-month Argentinean peso forward (LHS)
12-month HK dollar forward (RHS)
2001
pips
0
10000
25000
20000
15000
0
5000
-500
500
9
BANKING SECTOR PERFORMANCEBANKING SECTOR PERFORMANCE
Capital adequacy ratio1 : 18.30% (Sep 01) 18.00% (Jun 01)
Liquidity ratio2 : 51.38% (Sep 01) 52.47% (Jun 01)
Net interest margin2 : 2.12% (Q3 annualised) 2.17% (Q2 annualised)
Classified loans2 : 6.44% (Sep 01) 6.81% (Jun 01)
Mortgage delinquency ratio3 : 1.22% (Dec 01) 1.28% (Sep 01)
Credit card - charge-off ratio3 : 5.97% (Oct/Nov annualised) 4.75% (Q3 annualised)
Growth of total HK dollar deposits4 : 0.10% (Q4) 0.30% (Q3)
Growth of total domestic lending4 : -1.30% (Q4) -1.70% (Q3)
1 Locally-incorporated AIs2 Locally-incorporated banks3 Surveyed AIs (29 for RMLs, 23 for credit cards)4 All AIs
10
BANKING - EFFICIENCY AND COMPETITIONBANKING - EFFICIENCY AND COMPETITION
• Commercial Credit Reference Agency
• Positive consumer credit data
• Review of market entry criteria
• Banking consumer protection
11
BANKING - SAFETY AND SOUNDNESSBANKING - SAFETY AND SOUNDNESS
• Deposit Insurance Scheme
• Bank consolidation
• New Capital Accord
• Mortgage loans in negative equity
12
FINANCIAL INFRASTRUCTUREFINANCIAL INFRASTRUCTURE
Objective: reinforce Hong Kong’s role as an International Financial Centre
Our competitive advantage: a financial infrastructure in which financial intermediation and other financial transactions can be conducted safely and efficiently
• Domestic financial activities
• International financial activities
• Mainland / Hong Kong financial activities
13
FINANCIAL INFRASTRUCTURE FORFINANCIAL INFRASTRUCTURE FORDOMESTIC FINANCIAL ACTIVITIESDOMESTIC FINANCIAL ACTIVITIES
• Debt market development – expansion of market size and promotion of retail investor base
• Retail payment systems – self regulatory approach; preparation of industry codes of practices; monitoring e-money development
• Integration of payment, clearing and settlement systems for money, debt securities, equities and their derivatives to enhance liquidity and promote real time DvP
14
FINANCIAL INFRASTRUCTURE FOR INTERNATIFINANCIAL INFRASTRUCTURE FOR INTERNATIONAL FINANCIAL ACTIVITIESONAL FINANCIAL ACTIVITIES
• Promotion of US dollar RTGS in the region
• Proposal to develop a RTGS system for euro and yen
• International linkages of payment systems
• Promotion of international linkages of debt clearing systems
15
FINANCIAL INFRASTRUCTURE FOR INTERNATIFINANCIAL INFRASTRUCTURE FOR INTERNATIONAL FINANCIAL ACTIVITIESONAL FINANCIAL ACTIVITIES
• Rising turnover
• Hong Kong and regional membership
• First ever PvP transaction was done in Hong Kong on 25 September 2000 between HK dollar and US dollar
0
1,000
2,000
3,000
4,000
5,000
6,000
Aug-
00
Sep-
00
Oct-
00
Nov-
00
Dec-
00
Jan-
01
Feb-
01
Mar-
01
Apr-
01
May-
01
Jun-
01
Jul-
01
Aug-
01
Sep-
01
Oct-
01
Nov-
01
Dec-
01
0
500
1,000
1,500
2,000
2,500
3,000
3,500
in US $ MnValue No. of transactions
Month
US$ RTGS Over US$5 bn daily
Of which PvP (US$ / HK$) Over US$2 bn daily
US dollar RTGS turnover (daily average)
16
FINANCIAL INFRASTRUCTURE FORFINANCIAL INFRASTRUCTURE FOR MAINLAND / HONG KONG FINANCIAL ACTIVITIES MAINLAND / HONG KONG FINANCIAL ACTIVITIES
• Warrants special attention because of exchange controls and non-convertible currency in the Mainland, and rapid liberalisation
• Objective 1: greater use of Hong Kong for the Mainland’s international financial activities
• Objective 2: address asymmetric mobility of capital by developing appropriate channels to facilitate cross-border flow of funds
17
MAINLAND / HONG KONG FINANCIAL ACTIVITIMAINLAND / HONG KONG FINANCIAL ACTIVITIES – INITIATIVESES – INITIATIVES
• Location of international treasury operation of Mainland banks in Hong Kong
• Joint cheque clearing between Guangdong and Hong Kong
• Linkages in debt clearing systems
• Linkages in payment systems
18
EXCHANGE FUND PERFORMANCEEXCHANGE FUND PERFORMANCE
2001 2000 1999
(HK$ billion)
Gain / (Loss) on HK equities* (27.1) (7.3) 96.5
Gain / (Loss) on other equities* (3.2) 0.5 3.8
Exchange gain / (loss) (13.1) (11.2) (9.9)
Total return from bonds, etc 50.4 63.1 13.4
Investment income 7.0 45.1 103.8
* including dividends
19
EXCHANGE FUND INVESTMENT BENCHMARKEXCHANGE FUND INVESTMENT BENCHMARK
Bonds 80%
Equities 20% (Hong Kong : 5%)
Currencies 80% US dollar bloc
15% European bloc
5% Yen
20
EXCHANGE FUNDEXCHANGE FUNDPERFORMANCE AGAINST BENCHMARKPERFORMANCE AGAINST BENCHMARK
3.8%
0.4%
10.8%
4.8%
0.7%
5.5%
0%
2%
4%
6%
8%
10%
12%
1999 2000 2001*
Investment Return of ExchangeFund's Investment Benchmark
Investment Return of Exchange Fund
* Preliminary, unaudited figures for 2001
21
INVESTMENT PERFORMANCE OF EXCHANGE FUND INVESTMENT PERFORMANCE OF EXCHANGE FUND AND COMPARABLE BALANCED FUNDSAND COMPARABLE BALANCED FUNDS
Balanced Funds with 20% - 30% Equity Component
Source: Watson Wyatt and Standard & Poor’s
1st Quartile
2nd Quartile
3rd Quartile
4th Quartile
16%
14%
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
10.8%
4.8%
0.7%
Exchange Fund
Return
1999 2000 2001
22
2.4%
10.8%
5.1%
6.1%
12.1%
10.8%
4.8%
0.7%
6.5%
2.4%
0%
2%
4%
6%
8%
10%
12%
14%
1994 1995 1996 1997 1998 1999 2000 2001 CompoundedAnnual
InvestmentReturn
(1994-2001)
Average Annual HK
CPI-A (1994-2001)#
EXCHANGE FUND HISTORICAL RETURNEXCHANGE FUND HISTORICAL RETURN
# Hong Kong CPI-A at end-November 2001
23
EXCHANGE FUND ABRIDGED BALANCE SHEETEXCHANGE FUND ABRIDGED BALANCE SHEET
(HK$ billion) 2001 2000 Change
ASSETSDeposits 98.6 73.1 25.5Debt securities 733.3 729.8 3.5Hong Kong equities 85.9 152.9 (67.0)Other equities 35.3 40.6 (5.3)Other assets 27.5 27.0 0.5
Total assets 980.6 1,023.4 (42.8)
LIABILITIES AND ACCUMULATED SURPLUSCertificates of Indebtedness 107.5 99.2 8.3Coins in circulation 5.7 5.9 (0.2)Balance of banking system 0.7 0.7 -Exchange Fund Bills and Notes 118.2 109.3 8.9Placements by other HKSAR government funds 380.6 417.2 (36.6)Other liabilities 65.2 84.0 (18.8)Total liabilities 677.9 716.3 (38.4)Accumulated surplus 302.7 307.1 (4.4)
Total liabilities and accumulated surplus 980.6 1,023.4 (42.8)
24
EXCHANGE FUNDEXCHANGE FUNDCHANGE IN ACCUMULATED SURPLUSCHANGE IN ACCUMULATED SURPLUS
I 2001 I 2000
(HK$ billion) Full year Q1 Q2 Q3 Q4 Full year
Investment income/(loss) 7.0 (14.6) (2.0) 10.4 13.2 45.1
Other income 0.2 0.1 0.0 0.1 0.0 0.2
Interest and expenses (9.9) (2.8) (2.8) (2.3) (2.0) (11.0)
Net investment income/(loss) (2.7) (17.3) (4.8) 8.2 11.2 34.3
Treasury’s share (1.7) 6.1 1.0* (4.0)* (4.8)* (18.1)
Increase/(Decrease) in EF accumulated surplus (4.4) (11.2) (3.8) 4.2 6.4 16.2
* Treasury’s share in the first three quarters of financial year 2001-02 : HK$7.8 billion.
25
(HK$ billion)
Investment in August 1998 118.1
Income from Disposal and Dividends (end-Dec 2001) 139.9
Size of remaining portfolio (end-Dec 2001) 85.9Disposal 36.9
Long Term Investment* 49.0
* Including Hong Kong equities transferred from the Land Fund in 1998
(valued at HK$9 billion in 1998).
EXCHANGE FUND HONG KONG EQUITY PORTFOLIOEXCHANGE FUND HONG KONG EQUITY PORTFOLIO
26
Briefing to the Legislative CouncilBriefing to the Legislative Council
Panel on Financial AffairsPanel on Financial Affairs
4 February 20024 February 2002
HONG KONG MONETARY AUTHORITYHONG KONG MONETARY AUTHORITY
27
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