HONG KONG MONETARY AUTHORITY
Briefing to the Legislative Council Panel on Financial Affairs
2 March 2020
[ Translation ]
1. Assessment of Risk to Hong Kong’s Financial Stability
2. Banking Supervision 3. Financial Infrastructure
4. Development of Financial Market
5. Investment Performance of the Exchange Fund 6. Hong Kong Mortgage Corporation
2
•
NOVEL CORONAVIRUS IMPACTS THE GLOBAL ECONOMY
Supply chain
disruptions due to production halts
• Declining
wealth lowers consumption
• Fewer fundraising activities
• More uncertain economic outlook
Consumption and
investment
Service exports
Financial market
impact
Merchandise exports
• Tourism hit by the outbreak and entry restrictions
3
IMPACTS HINGE ON
NOVEL CORONAVIRUS SITUATION AND ECONOMIC LINKAGE WITH MAINLAND
Travel restrictions and local outbreak weigh on tourism
40 %
30
20
10
0
Mainland visitors as % of total visitors Travel exports as % of GDP
MY ID SG PH TH KR
Note: Q3 2019 data for travel exports; November 2019 data for visitor number
Source: CEIC
Mainland’s production suspension disrupts supply chain
VN 21.9
MY TH HK TW TW MY SG HK KR
7.6
10.2 10.5 10.5
10.0 10.4
Dependence on Mainland's supply (% of GDP)
10.8 11.6
20.0
Dependence on Mainland's market (% of GDP)
Note: Asian economies’ dependence on Mainland’s supply includes Mainland’s value added contribution to their final demand and exports. Asian economies’
dependence on Mainland’s market includes their value added contribution to China’s final demand and exports
Source: TiVA of the OECD (latest version)
4
MAINLAND CONSUMPTION AND PRODUCTION AFFECTED
Residents avoid going out Industrial production stays stagnant
Note: The daily city traffic congestion index is an average of congestion indices of 100 cities in Mainland China
Source: WIND
Note: The third week before Spring Festival = 100 Source: WIND
5
NOVEL CORONAVIRUS INFECTION POSES THREAT TO MAINLAND AND
GLOBAL GROWTH
IMF 2020 real GDP growth forecasts (Baseline scenario)
Note: The baseline scenario assumes that relief measures announced by the Mainland authorities will be implemented and the Mainland economy returns to normal in Q2 2020.
Source: IMF 6
NOVEL CORONAVIRUS DEALS
A FURTHER BLOW TO HONG KONG ECONOMY
Tourism and retail sectors face Unemployment rate is likely more severe headwinds to climb visibly
Source: Census and Statistics Department, Hong Kong Tourism Board
7
ASSESSMENT OF RISKS TO HONG KONG’ S FINANCIAL STABILITY:
HKD REMAINS STABLE
USD/HKD USD/HKD
7.70 7.70
7.75 7.75
Weak-side CU Strong-side CU HKD appreciates
HKD depreciates
2017 2018 2019 2020
7.80 7.80
7.85 7.85
7.90 7.90
Year Trigger of Weak-side
CU
Outflows from HKD
(HK$ bn) 2018
Apr - Aug 27 times 103.5 2019
Jan - Mar 8 times 22.1 Apr 2019
– present 0 times 0
Source: HKMA 8
Other foreign currency deposits Total deposits
ASSESSMENT OF RISKS TO HONG KONG’S FINANCIAL STABILITY:
STABLE DEPOSIT LEVELS
HK$ trillion HKD deposits
USD deposits
16 14 12 10 8 6 4 2 0 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: HKMA 9
HONG KONG: PROPERTY TRANSACTIONS DECLINED AFTER A TEMPORARY REBOUND
Source: Land Registry 10
HONG KONG:
PROPERTY PRICE TREND UNCERTAIN, CORONAVIRUS IMPACT TO BE SEEN
Sources: Rating and Valuation Department and Centaline Property Agency Limited 11
HONG KONG’S FINANCIAL SYSTEM REMAINS ROBUST AND STABLE
• US-China trade tensions, social incidents and the coronavirus outbreak have weighed heavily on the Hong Kong economy
• Hong Kong’s monetary system continues to function in an orderly manner, with stable HKD exchange rate and interbank interest rates
• Hong Kong’s banking system is operating smoothly and highly resilient to market shocks
• The HKMA has taken measures to enhance banks’ lending ability in support of the real economy, especially small and medium enterprises
• We will closely monitor the impact of the outbreak on the
real economy and financial markets
121. Assessment of Risk to Hong Kong’s Financial Stability
2. Banking Supervision
3. Financial Infrastructure
4. Development of Financial Market
5. Investment Performance of the Exchange Fund 6. Hong Kong Mortgage Corporation
13
BANKING SECTOR PERFORMANCE
Total loans grew at a moderate pace, with asset quality staying at a healthy level
Total loan growth(%) 20.2
9.6
16.0
12.7
3.5
6.5
16.1
4.4
6.7 0.56%
0.52%
Classified loan ratio*
2011 2012 2013 2014 2015 2016 2017 2018 2019
Note: * Classified loan ratio covers only retail banks. Classified loan ratio for 2019 denotes figure for Q3.
Source: HKMA 14
BANKING SECTOR SME LENDING COORDINATION MECHANISM
• Held two more meetings in January and February. Key measures include:
Streamline the application procedures of the 80% Guarantee Product
Call on merchant acquirers not to extend credit card payment withholding periods for small and medium enterprises (SMEs)
Exercise flexibility in handling refinancing applications for upgrades of public light buses
Allow SME customers to extend or reschedule their repayment period to lessen their cash flow pressure
Introduce relief measures targeting specific sectors (e.g.
import & export and transportation sectors)
Offer principal moratoriums for residential mortgages
Exercise flexibility in handling maximum mortgage loan tenors
Offer unsecured personal relief loans 15
LEGISLATIVE WORK
International Standards
• Banking (Capital) (Amendment) Rules 2020
• Banking (Exposure Limits) (Amendment) Rules 2020
Resolution Regime
• Standard disclosure templates under the Financial Institutions (Resolution) (Loss-absorbing Capacity Requirements – Banking Sector) Rules
• Developing subsidiary legislation under the Financial Institutions (Resolution) Ordinance on contractual stays
16
1. Assessment of Risk to Hong Kong’s Financial Stability
2. Banking Supervision
3. Financial Infrastructure
4. Development of Financial Market
5. Investment Performance of the Exchange Fund 6. Hong Kong Mortgage Corporation
17
FASTER PAYMENT SYSTEM (FPS)
Average daily turnover of Number of registered accounts HKD real-time payments
In January 2020 191,000 txn/day
Volume (‘000) HK$ 2.5 bn/day Value (HKD bn) 210
As at end-January 2020 Mobile number : 2.84 million Email address : 0.70 million FPS ID : 0.66 million Total : 4.20 million
4,500,000 4,000,000
170 190 3,500,000
3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0
No. of registered accounts
2.0 150
130 1.6
110 1.2
90
0.8 70
50 0.4
30 0.0
Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
2018 2019 2020
Mobile Number Email Address FPS Identifier
Oct‐18 Nov Dec Jan‐19 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan‐20
Transaction Volume ( '000) Transaction Value (HKD bn)
18
2.4 2.8
LATEST FINTECH INITIATIVES
• Co-organised with InvestHK “Hong Kong Fintech Week 2019”, which attracted over 12,000 attendees from over 60 economies
• Published in December 2019 a report on the application of Artificial Intelligence in the banking industry
• Started an industry-wide consultation on the proposed enhancements to the existing framework of the Cybersecurity Fortification Initiative
• Working with Bank of Thailand on a joint research project on the application of Central Bank Digital Currency to cross-border payments
• Bank for International Settlements Innovation Hub Hong Kong Centre commenced operation
19
1. Assessment of Risk to Hong Kong’s Financial Stability
2. Banking Supervision 3. Financial Infrastructure
4. Development of Financial Market
5. Investment Performance of the Exchange Fund 6. Hong Kong Mortgage Corporation
20
DEVELOPING HONG KONG'S FINANCIAL PLATFORM
Green Finance
• Continue to support green finance to combat climate change, in our capacity as a bank regulator, asset owner, and market facilitator. To promote the development of green finance in Hong Kong, the HKMA will also assist the Government to issue more green bonds
Retail Bonds
• The HKMA will assist the Government in the issuance of iBond and Silver Bond in order to promote the further development of the Hong Kong retail bond market
Private equity (PE) fund platform
• The HKMA is working with the Administration to develop a legislative proposal on a new limited partnership regime for PE funds. The Administration consulted this Panel on 2 December 2019 and received general support for the proposed regime. The plan is to introduce the bill into LegCo as soon as possible 21
1. Assessment of Risk to Hong Kong’s Financial Stability
2. Banking Supervision 3. Financial Infrastructure
4. Development of Financial Market
5. Investment Performance of the Exchange Fund
6. Hong Kong Mortgage Corporation
22
INVESTMENT INCOME
I 2019 I 2018 2017
(HK$ billion)
(unaudited) Full
year 2H 1H Full year
Full year
Bonds 114.4 38.0 76.4 57.4 34.4
Hong Kong equities* 22.1 1.8 20.3 (20.7) 58.3 Other equities 100.3 35.2 65.1 (38.7) 80.4 Foreign exchange# (13.0) (9.5) (3.5) (9.0) 53.5 Other investments@ 23.4 3.3 20.1 21.9 37.4 Investment
income/(loss) 247.2 68.8 178.4 10.9 264.0
* Excluding valuation changes of the Strategic Portfolio.
# This is primarily the effect of translating foreign currency assets into Hong Kong dollar after deducting the portion for currency hedging.
@ Including valuation changes of private equity and real estate investments held under the Long-Term Growth Portfolio. This figure represents valuation changes up to the end of September 2019.
Valuations of these investments from October to December are not yet available.
23
INCOME AND EXPENDITURE
I 2019 I 2018 2017
(unaudited)
Full 2H 1H Full Full
(HK$ billion) year year year
Investment income/(loss) 247.2 68.8 178.4 10.9 264.0
Other income 0.2 0.1 0.1 0.2 0.2
Interest and other expenses (24.8) (13.4) (11.4) (17.9) (9.9)
Net income/(loss) 222.6 55.5 167.1 (6.8) 254.3
Fee payment to Fiscal Reserves*# (29.4) (14.1) (15.3) (60.2) (46.2) Fee payment to HKSAR
government funds and statutory
bodies* (9.0) (4.5) (4.5) (13.8) (8.6)
* The rate of fee payment is 2.9% for 2019, 4.6% for 2018 and 2.8% for 2017.
# This does not include the 2019 fee payment to the Future Fund because such amount will only be disclosed when the composite rate for 2019 is available.
(The composite rate was 6.1% for 2018 and 9.6% for 2017. Fee payable to the Future
Fund was HK$16.4 billion for 2018 and HK$22.7 billion for 2017). 24
INVESTMENT RETURN
OF THE EXCHANGE FUND (1994-2019)
11 Investment return calculation excludes the holdings in the Strategic Portfolio.
2 The return includes the performance of LTGP up to the end of September 2019. The audited full year return will be disclosed in the annual report of 2019 to be released later this year.
3 Composite CPI is calculated based on the 2014/2015-based series.
25
1. Assessment of Risk to Hong Kong’s Financial Stability
2. Banking Supervision 3. Financial Infrastructure
4. Development of Financial Market
5. Investment Performance of the Exchange Fund 6. Hong Kong Mortgage Corporation
26
MORTGAGE INSURANCE PROGRAMME (MIP)
• The following revisions were made to the MIP with effect from 16 October 2019:
The cap on the value of a property eligible for a mortgage loan of maximum cover of 80% loan-to-value (LTV) ratio was raised from the HK$6 million to HK$10 million
For a property eligible for a mortgage loan of maximum cover of 90%
LTV ratio, the cap on its value was raised from HK$4 million to HK$8 million
Mortgage loans under the revised criteria shall apply to completed residential properties only, and an additional 15% insurance premium will be charged
Generally speaking, the maximum debt-to-income (DTI) ratio for all MIP loans is set at 50%, and borrowers have to meet the stressed DTI ratio.
A first-time homebuyer is still eligible to apply even if he or she cannot meet the stressed DTI ratio, subject to an additional adjustment to the premium based on relevant risk factors
As of 31 January 2020, approved 5,409 applications under the new coverage, with over 90% being first-time homebuyers 27
FIXED-RATE MORTGAGE PILOT SCHEME
• Scheme for 10, 15 and 20 years available, with interest rates at 2.75%, 2.85% and 2.95% per annum respectively
• Maximum loan amount of each private residential mortgage is HK$10 million
• As the borrowers will be insulated from interest rate movement under the fixed-rate period which is 10 years or longer, stress testing against interest rate rise will not be required, but the current DTI ratio will still be applicable
• The pilot scheme is subject to an aggregate loan amount of HK$1 billion and will be effective for 6 months starting from the date of receiving applications
• Further announcement will be made on the participating banks
and the date of receiving applications 28
SME FINANCING
GUARANTEE SCHEME (SFGS)
• In 2019, the number and amount of applications approved increased by 60% and 89% respectively as compared to 2018
• The Finance Committee of the LegCo approved the funding for the introduction of a new 90% guarantee product under the SFGS on 6 December 2019. The 90% Guarantee Product aims to provide additional support to smaller-sized enterprises and businesses with relatively less operating experience.
Each eligible enterprise can obtain guarantee for loans up to HK$6 million, with a maximum guarantee period of five years;
HKMC has started receiving applications on 16 December 2019
• As of 31 January 2020, approved 155 applications under the 90% Guarantee Product, involving loan amount of more than
HK$270 million 29
SFGS – SPECIAL 100% LOAN GUARANTEE
• Applicable to SMEs in all sectors, including those mostly affected by the coronavirus outbreak such as retail outlets, travel agents, restaurants, cinemas, karaoke establishments, transport operators, etc.
• 100% guaranteed by the Government, with a total loan amount of HK$20 billion
• Enterprises should have been operating for at least three months as at end-December 2019, and have suffered at least a 30% decline in sales turnover in any month since February 2020 compared with the monthly average of any quarter in 2019
• Maximum amount of the loan is the total amount of employee wages and rents for six months, or HK$2 million, whichever is lower
• An interest rate of the Prime Rate minus 2.5% per annum (i.e. current interest rate at 2.75%) will be charged. All guarantee fee will be waived
• Maximum repayment period is 36 months, with an optional principal moratorium for the first six months
• Actively undertaking the preparatory work with the lending institutions, and striving to roll out the scheme within one month after obtaining approval of funding from the Finance Committee of the Legislative Council. The application period will last for six months starting from the launch of the scheme, and the date for receiving applications
will be further announced 30
HKMC ANNUITY PLAN
• Minimum eligible age lowered from 65 to 60 since 26 February
• Individual premium cap remains unchanged at HK$3 million
• Internal rate of return remains unchanged at around 4%
• Examples of monthly annuity payment
Insured age Per HK$1million single premium
Male Female
60 5,100 4,700
65 5,800 5,300
31
