HONG KONG MONETARY AUTHORITY
Briefing to the Legislative Council Panel on Financial Affairs
4 May 2020
2
Updates on
– Financial and Economic Environment – Currency Stability
– Banking Stability
– Financial Infrastructure
– Hong Kong as an International Financial Centre – Investment Environment and Performance of
the Exchange Fund
– Hong Kong Mortgage Corporation
DISCUSSION TOPICS
3
FINANCIAL AND ECONOMIC
ENVIRONMENT
4
GLOBAL ECONOMIC GROWTH FORECASTS
Source: April 2020 Consensus Forecasts
(% year-on-year)
Real GDP Growth
2019 2020
Forecasts
2021 Forecasts
US 2.3 -4.0 3.9
Euro area 1.2 -5.7 5.4
Japan 0.7 -3.3 2.1
Asia (ex-Japan) 5.0 1.4 6.7
Mainland China 6.1 2.0 7.8
Hong Kong -1.2 -3.3 3.5
5
REAL GDP GROWTH IN MAJOR ECONOMIES
Source: CEIC
-20 -16 -12 -8 -4 0 4 8 12
2006 2008 2010 2012 2014 2016 2018
-20 -16 -12 -8 -4 0 4 8 12
% qoq, annualised % qoq, annualised
Japan US
Euro area
2019 (Q4)
6
HEADLINE INFLATION IN MAJOR ECONOMIES
Source: CEIC
-3 -2 -1 0 1 2 3 4 5 6
-3 -2 -1 0 1 2 3 4 5 6
2006 2008 2010 2012 2014 2016 2018 2020
% yoy
% yoy
Japan US
Euro area
(Mar)
7
PURCHASING MANAGERS’ INDEX IN MAJOR ECONOMIES
Source: CEIC
*Weighted average of the ISM manufacturing and non-manufacturing indices
8
NOMINAL EFFECTIVE EXCHANGE RATE INDEX OF MAJOR CURRENCIES
Source: CEIC
9
US: CONSUMPTION GROWTH &
BUSINESS INVESTMENT ACTIVITY
Source: CEIC
-50 -40 -30 -20 -10 0 10 20 30 40 50
-8 -6 -4 -2 0 2 4 6 8
2002 2004 2006 2008 2010 2012 2014 2016 2018
% 3m-on-3m, annualised % 3m-on-3m, annualised
Non-defence capital goods shipments (RHS) Real personal consumption expenditure (LHS)
2020 (Feb)
10
US: LABOUR MARKET SITUATION
Source: CEIC
57 58 59 60 61 62 63 64 65 2
4 6 8 10 12
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
% %
Unemployment rate (LHS) Employment-to-population ratio (Inverted, RHS)
(Mar)
11
US: LABOUR FORCE PARTICIPATION
Source: CEIC
62 63 64 65 66 67 68
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
%
Labour force participation rate
(Mar)
12
US: HOME PRICES
Sources: CEIC and Datastream
100 120 140 160 180 200 220
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Index (Jan 2000=100)
FHFA home price index Case-Shiller 20-city home price index
(Jan)
13
US: HOME SALES
Sources: CEIC and Datastream
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4
0 1 2 3 4 5 6 7 8
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Millions, annualised Millions, annualised
Existing home sales (LHS)
New home sales (RHS)
(Feb)
14
US: FEDERAL GOVERNMENT DEBT
Sources: CEIC and Congressional Budget Office
US federal debt held by the public
15
EURO AREA: SOVEREIGN BOND YIELDS
Note: 10-year Irish sovereign bond yield data is not available between 12 Oct 2011 and 14 Mar 2013 Source: Bloomberg
10-year sovereign bond yield
0 5 10 15 20 25 30 35 40
2010 2012 2014 2016 2018 2020 Portugal Greece
%
Ireland
(Apr)
-1 0 1 2 3 4 5 6 7 8
2010 2012 2014 2016 2018 2020 Spain
Italy
%
France
Germany
(Apr)
16
EURO AREA: UNEMPLOYMENT RATE
Source: Bloomberg
0 5 10 15 20 25 30
0 5 10 15 20 25 30
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
% %
Total unemployment rate Youth unemployment rate
(Feb)
17
EURO AREA: OVERALL INDEBTEDNESS
Source: European Central Bank
Note: FR – France, IT – Italy, ES – Spain, PT – Portugal, GR – Greece, IE – Ireland
The latest figures are up to Q4/2019 for financial institutions, and Q3/2019 for government and corporates and households
0 100 200 300 400 500 600 700 800 900 1000 IE
GR PT ES IT FR IE GR PT ES IT FR IE GR PT ES IT FR
Q4/2009 Latest
% of GDP
Corporates and households
Financial institutions Government
18
JAPAN: FINANCIAL MARKETS
Source: Bloomberg 600
800 1,000 1,200 1,400 1,600 1,800 2,000
2012 2013 2014 2015 2016 2017 2018 2019 2020 Index
TOPIX
-0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0 1.2
2012 2013 2014 2015 2016 2017 2018 2019 2020
%
Japanese 10-year government bond yield
Yield curve control band
19
JAPAN: PUBLIC DEBT
Sources: Bank of Japan and CEIC
20
MAINLAND CHINA: REAL GDP GROWTH
Source: CEIC
21
MAINLAND CHINA: RETAIL SALES
Note: January and February figures are the average annual growth rate for the first two months of the year Sources: WIND and HKMA staff estimates
22
MAINLAND CHINA:
FIXED ASSET INVESTMENT
Sources: CEIC and HKMA staff estimates
23
MAINLAND CHINA:
IMPORT AND EXPORT GROWTH
Sources: CEIC and HKMA staff estimates
24
MAINLAND CHINA:
PURCHASING MANAGERS’ INDEX
Source: CEIC
25
MAINLAND CHINA: INFLATION
Source: CEIC
26
MAINLAND CHINA:
MONEY AND LOAN GROWTH
Source: CEIC
27
MAINLAND CHINA:
AGGREGATE FINANCING FLOW
Source: CEIC
28
MAINLAND CHINA: PROPERTY PRICE AND TRANSACTION VOLUME
Sources: CEIC, WIND and HKMA staff estimates
29
MAINLAND CHINA: HOUSING PRICE CHANGES IN MAJOR CITIES
Sources: CEIC, WIND and HKMA staff estimates
30
HONG KONG: REAL GDP GROWTH
Source: C&SD
31
HONG KONG: ECONOMIC ACTIVITY
Source: C&SD
32
HONG KONG: BUSINESS OUTLOOK
Sources: C&SD and IHS Markit
33
HONG KONG: UNEMPLOYMENT RATE
Source: C&SD
Sources: C&SD and HKMA staff estimates 34
HONG KONG: INFLATION
35
HONG KONG: EQUITY MARKET
Source: Bloomberg
36
HONG KONG:
RESIDENTIAL PROPERTY PRICES
Source: Rating and Valuation Department
37
HONG KONG: TRANSACTION VOLUME IN THE PRIMARY AND SECONDARY MARKETS
Source: Land Registry
38
HONG KONG: NEW RESIDENTIAL MORTGAGE LOANS
Source: HKMA
39
HONG KONG: COMPOSITE INTEREST RATE
Source: HKMA
0 1 2 3 4
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
% p.a.
(Feb)
40 20.2
9.6 16.0
12.7
3.5 6.5
16.1
4.4 6.7
1.2 0.48*
0.0 0.2 0.4 0.6 0.8 1.0
0 5 10 15 20 25
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total loans (LHS)
Classified loans of retail banks (RHS)
Growth rate (%) % of total loans
(Jan-Feb)
HONG KONG: LOAN GROWTH AND ASSET QUALITY
Note: * The figure is for 2019Q4
Source: HKMA
41
HONG KONG: HOUSEHOLD DEBT
Source: HKMA
54.3
80.4
0 10 20 30 40 50 60 70 80 90
0 10 20 30 40 50 60 70 80 90
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Residential mortgage
Credit card advances
Loans for other private purposes
% of GDP Total household debt % of GDP
42
CURRENCY STABILITY
43
HONG KONG DOLLAR SPOT EXCHANGE RATE
• The strong-side Convertibility Undertaking was triggered on 21 and 22 April 2020.
44
AGGREGATE BALANCE
• The strong-side Convertibility Undertaking was triggered on 21 and 22 April 2020.
The HKMA sold a total of HK$7.7 billion to the market in exchange for US dollars.
45
DOMESTIC INTEREST RATES
46
12-MONTH HONG KONG DOLLAR
FORWARD POINTS
47
BANKING STABILITY
48
Locally incorporated authorized institutions (AIs) are well capitalised
BANKING SECTOR PERFORMANCE
• The banking sector remained well capitalised. The consolidated capital adequacy ratio of locally incorporated AIs stood at 20.7% at end-December 2019, well above the international minimum requirement of 8%.
49
Liquidity position remained sound
BANKING SECTOR PERFORMANCE
• In the first quarter of 2020, the quarterly average LCR of category 1 institutions was 160.4%, well above the 100% statutory minimum requirement. For category 2 institutions, their quarterly average LMR was 56.8%, also well above the 25% statutory minimum requirement.
50
Asset quality remained healthy
BANKING SECTOR PERFORMANCE
• The asset quality of retail banks remained healthy. Their classified loan ratio decreased to 0.48% at end-December 2019 from 0.52% a quarter earlier. For the banking sector as a whole, the classified loan ratio remained largely stable at 0.57% at end-December 2019.
51
Net interest margin improved slightly in 2019
BANKING SECTOR PERFORMANCE
• The net interest margin of retail banks’ Hong Kong offices widened slightly to 1.63% in 2019 from 1.62% in 2018.
52
BANKING SECTOR PERFORMANCE
Credit grew at a modest pace
Source: HKMA
• Total loans grew at a modest pace of 2.8% in the first quarter of 2020, or 11.4% on an annualised basis.
53
BANKING SECTOR PERFORMANCE
Loan-to-deposit ratios remained broadly stable
• Hong Kong-dollar loan-to-deposit ratio remained stable at 90% at end-March 2020 compared to end-December 2019.
• All currencies loan-to-deposit ratio increased to 77% at end-March 2020 from 75% at end-December 2019.
54
PROPERTY MORTGAGE LOANS
Residential property price index and transaction volume
Sources: R&VD and Land Registry
Average loan-to-value (LTV) ratio and debt servicing ratio (DSR) for new residential
mortgage loans approved
* Before the first round of HKMA’s countercyclical measures was introduced
# When the tighter requirement on debt servicing ratio was introduced by the HKMA
0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000
0 50 100 150 200 250
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Transaction volume (rhs)
Property price index (lhs) Property Price
Index (Oct 1997 = 100)
7th round of countercyclical
measures
Sale and Purchase agreements
Feb 2020 3,572 Feb 2020
214 8th round of countercyclical
measures
Feb 2020 55%
Feb 2020 36%
31 33 35 37 39 41 43 45
30 35 40 45 50 55 60 65 70
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Average LTV ratio Average 5Sw
Sep 2009*
64%
Aug 2010#
41%
Average loan-to-value ratio (%)
Average debt servicing ratio (%)
Latest statistics on residential mortgage loans (RMLs) Monthly
average in 2018
Monthly average in 2019
Sep 2019
Oct 2019
Nov 2019
Dec 2019
Jan 2020
Feb 2020
Number of sale and purchase agreements
4,771 4,983 3,447 4,001 5,756 3,184 2,762 3,572
Number of new RML
applications
12,567 12,085 9,655 9,299 9,412 7,836 9,115 8,536
Number of new RMLs
approved
9,010 8,759 8,181 7,614 6,505 6,066 5,637 5,576
Latest statistics on residential property prices
Property price index Period Property price index Rating and
Valuation Department (10/1997=100)
Latest position 2/2020 214.4
Recent peak 5/2019 229.6
Peak in 1997 10/1997 100.0
Centaline Latest position 22/3/2020 175.6
55
FIGHTING THE VIRUS
AND SUPPORTING THE ECONOMY
• New relief measures rolled out by banking industry:
Cutting regulatory reserve requirement by half, releasing around HK$200 billion in lending capacity
Pre-approved principal payment holiday for corporate customers
“Special 100% Loan Guarantee" open for applications
Exploring principal payment holiday for subsidised housing
• As of 21 April 2020, applications for relief measures approved by banks:
Corporate customers: over 11,000 applications (HK$86 billion)
Personal customers: over 5,200 applications (HK$15 billion)
• Cutting regulatory reserve requirement together with lowering the countercyclical capital buffer ratio released a total of HK$1 trillion of lending capacity.
• Launched the “Pre-approved Principal Payment Holiday Scheme”, covering corporate borrowers with annual turnover below HK$800 million, representing 80% of all corporate borrowers in Hong Kong. Extension is up to six months and application is not required.
• Good response for Special 100% Loan Guarantee Scheme. As of 23 April 2020, 180 applications, totalling HK$410 million, have been approved.
• As of 21 April 2020, more than 11,000 applications from corporate customers for principal moratoriums, extensions of repayment schedules, contingency loans and other relief measures have been approved by banks, amounting to over HK$86 billion.
• For retail customers, banks have approved more than 5,200 applications for principal
56
INTERNATIONAL STANDARDS IMPLEMENTATION
• Banking (Capital) (Amendment) Rules 2020 on Basel standards:
Standardised approach for measuring counterparty credit risk of banks’ derivative contracts
Treatment of banks’ exposures to central counterparties (in centrally-cleared transactions)
The following legislative proposals are being made or prepared for the purpose of implementing the Basel regulatory standards:
Capital standards
• A set of Banking (Capital) (Amendment) Rules will be tabled at LegCo for negative vetting on 29 April, with a view to taking effect on 30 June 2021. These Rules are aimed to implement the Basel revised counterparty credit risk framework, which consists of:
the standardised approach for measuring counterparty credit risk of derivative contracts (SA-CCR); and
the final standard on banks’ exposures to central counterparties (in centrally-cleared transactions), replacing the interim standard that has been in effect in Hong Kong since 2013.
[Note: These standards were originally scheduled to be effective on 1 January 2017 according to the Basel timeline. Local implementation has been deferred to track more
57
ANTI-MONEY LAUNDERING
• Issued circulars on COVID-19 and anti-money laundering and counter-financing of terrorism (AML/CFT) measures in April 2020, setting out the HKMA’s related support, guidance and assistance
Utilising flexibility built in risk-based approach
Encouraging remote on-boarding and simplified due diligence
Remaining vigilant to COVID-19 related financial crime risks
Ongoing outreach and advice
• Resonating with the statement published by the Financial Action Task Force on 1 April 2020, the HKMA issued circulars to authorized institutions (AIs) and stored value facility (SVF) licensees on 7 April to encourage use of the flexibility built into the HKMA’s risk- based approach. The circulars cover the following aspects:
Encouraging remote on-boarding and simplified due diligence: In view of social distancing requirements resulting from COVID-19, AIs are encouraged to continue to provide greater convenience for account opening and continued access to essential banking services, both physically and digitally. Following ongoing dialogue and the HKMA guidance, so far more than 10 retail banks have launched remote account opening services, while other banks are considering or testing similar initiatives. To help AIs adapt to the current situation, simplified due diligence measures can be taken where AIs identify lower ML/TF risks, as set out in the AML/CFT Guideline.
Remaining vigilant to COVID-19 related financial crime risks: Ever changing financial behaviour increases vulnerabilities of the banking system globally and locally. AIs and SVF licensees are reminded to remain vigilant to COVID-19 related financial crime risks, and ensure that they continue to focus on priority areas and effectively mitigate risks.
Ongoing outreach and advice: The HKMA adopts risk-based approach to AML/CFT supervision. Where there is a short-term impact on an AI’s ability to meet a particular
• The HKMA will continue to work closely with local and international partners (e.g. Joint Financial Intelligence Unit in Hong Kong and fellow regulators overseas); and work closely with AIs and SVF licensees to keep its assessment of the situation up-to-date and address practical AML/CFT issues that may be related to COVID-19 in the most pragmatic manner.
58
RESOLUTION REGIME
• Current legislative priority is development of rules under the Financial Institutions (Resolution) Ordinance (FIRO) on contractual stays, which would require the adoption of contractual provisions in certain financial contracts to give effect to a suspension of termination rights imposed under the FIRO
• Public consultation on contractual stays closed on 22 March 2020
• The current legislative priority on resolution is the development of rules to be made by the Monetary Authority as a resolution authority under the FIRO on contractual stays for authorized institutions (AIs) and certain group companies of AIs. The proposed rules will require the inclusion of contractual provisions in certain financial contracts that are not governed by Hong Kong law to the effect that the parties to the contracts agree to be bound by a suspension of termination rights (i.e. “stay”) that may be imposed by the Monetary Authority under the Hong Kong resolution regime. The policy proposals are intended to implement the relevant Financial Stability Board principles for enhancing cross-border effectiveness of resolution actions.
• A public consultation on the policy proposals for making rules on contractual stays closed on 22 March 2020.
59
FINANCIAL INCLUSION
• An additional mobile bank branch deployed to public housing estates
• Simple Bank Accounts with less extensive customer due diligence measures to facilitate services to small and medium-sized enterprises
• Launch of remote account opening services by banks
• Facilitated social security recipients residing on the Mainland to receive payments without returning to Hong Kong amid COVID-19
• The HKMA has been encouraging banks to flexibly and pragmatically deploy new technologies and devise new solutions to further enhance the coverage of banking networks in remote areas and public housing estates (PHEs). At end-2019, a retail bank launched a new mobile bank branch covering an addition of four PHEs in Yuen Long, Tai Po, Tung Chung and Tsing Yi. This brings the total number of mobile bank branches operating in Hong Kong to six, covering a total of 29 PHEs, thereby further enhancing the access to basic banking services in remote areas and PHEs.
• The HKMA encourages more banks to support and launch Simple Bank Accounts to provide basic banking services with less extensive customer due diligence measures, hence offering corporate customers more choices.
• The HKMA has been maintaining close dialogues with banks and fintech companies on their initiatives through the Fintech Supervisory Sandbox and Chatroom. The HKMA articulated to the industry the principles of identity authentication and identity matching when opening accounts remotely for individual customers, and reminded banks to adopt a risk-based approach during the processes of account opening and maintenance.
Some banks have already launched remote account opening services, while some other banks are considering or testing similar initiatives.
• The HKMA has been working closely with the Social Welfare Department (SWD) and the Hong Kong Association of Banks (HKAB) on ways to facilitate recipients/appointees of the Portable Comprehensive Social Security Assistance Scheme, Guangdong Scheme and Fujian Scheme who are currently residing on the Mainland to withdraw cash on the Mainland. Retail banks in Hong Kong have put in place arrangements that support the activation of cash withdrawal function of ATM cards issued by banks in Hong Kong (including debit cards and those credit cards with cash withdrawal function) on the Mainland through different bank channels (including bank hotlines), without the need to return to Hong Kong amid the COVID-19 situation. Remote channels (including mail-in, internet banking and/or mobile banking) are also available to enable recipients/appointees of the above-mentioned Schemes to set up standing instructions to regularly remit social security payments from their bank accounts in Hong Kong to their designated bank account on the Mainland. The relevant information is publicised on the webpages of the HKMA, the SWD and the HKAB.
60
• Worked with the Hong Kong Association of Banks (HKAB) to extend online retrieval period of e-Statements of retail individual accounts to a minimum of seven years
• Working closely with the HKAB to follow up with TransUnion in respect of phased resumption of its online consumer credit report service and on the proposed implementation of more than one credit referencing agency for personal credit data
BANKING CONSUMER PROTECTION
• For better customer experience in light of the popularity of digital financial services, the HKMA together with the HKAB introduced the initiative of extending online retrieval period of e-Statements to a minimum of seven years. By the end of the first quarter of 2020, retail banks offering e-Statements start to incrementally accumulate over time e-Statements for a cycle period of a minimum of seven years for online retrieval by retail individual customers. The HKMA also requires these banks to provide such service free of charge.
• The HKMA continues to work closely with HKAB in following up with TransUnion in respect of phased resumption of its online consumer credit report service.
• Meanwhile, the HKMA is working with the banking industry on further enhancing the oversight of credit referencing agencies (CRAs) and introducing multiple CRAs in Hong Kong, with a view to enhancing quality of service and addressing the operational risk of having only one CRA in the market.
61
• Introduced measures to facilitate banks’ operations and continued services to customers amid COVID-19, while according customer protection
• Worked closely with the Insurance Authority (IA) on introducing temporary facilitative measures for non-face-to-face sale of insurance products amid COVID-19
• Reminded registered institutions of important obligations to ensure suitability and timely dissemination of information to customers
BANKING INVESTOR PROTECTION
• Amid the COVID-19 situation, the HKMA has been maintaining close dialogues with banks and fellow regulators, and introduced facilitative measures, including:
allowing flexibility in submission deadlines for supervisory returns and surveys;
taking a pragmatic approach on delay in banks’ provision of contract notes, statements of account and receipts to customers because of suspension of local or overseas postal service;
providing clarifications to facilitate banks to provide investment services through video/tele-conferences and bank relationship managers to accept investment instructions from customers under the work-from-home arrangement; and
extending deadlines for passing regulatory examinations for fulfilment of licensing conditions, and for fulfilment of continuous professional training requirements by practitioners.
• In view of COVID-19, the HKMA and the IA worked closely to introduce temporary facilitative measures on 21 February 2020 to reduce the risk of infection during the sales process of insurance products while according protection to customers. In the first phase, insurers and insurance intermediaries (including banks) were allowed to distribute Qualifying Deferred Annuity Policy and Voluntary Health Insurance Scheme products
• The HKMA and the IA rolled out phase two of the temporary facilitative measures on 27 March 2020, expanding the scope of insurance product types that can be distributed through non-face-to-face methods to also cover term insurance policies and certain refundable or renewable insurance policies that provide insurance protection.
• On 27 March 2020, the HKMA issued guidance to registered institutions (RIs) to remind them of their suitability obligations and the obligation to timely disseminate information where they hold an investment product on behalf of their clients. RIs are reminded to conduct proper product due diligence on a continuous basis, taking into account the COVID-19 situation, and disclose any increase in product risk rating to customers to whom it recommended and sold the product.
62
PUBLIC EDUCATION
• Communicated on HKMA’s efforts in joining forces with the banking sector to support Hong Kong’s economy amidst the COVID-19 outbreak
• Alerted the public to avoid internet traps when shopping online
• Differentiated “cash payment” and “stage payment”
plans, and pinpointed the possibility of a larger down payment for the latter
• Further promoted the Faster Payment System service
• Publicised the lowering of the eligible age for applying for the HKMC Annuity Plan to 60
• Further reminded the public of banknote security features
• Communicated on HKMA’s efforts in joining forces with the banking sector to support Hong Kong’s economy amidst the COVID-19 outbreak.
• Alerted the public to avoid internet traps when shopping daily necessity items online.
They should verify the seller identities before making payment.
• Explained the difference between “cash payment” and “stage payment” plans, highlighting that a larger down payment may be required for the latter in cases where the valuation of the property is lower than the purchase price when taking a mortgage loan from a bank. Members of the public are advised to select a payment plan suitable for their own situation.
• Further promoted the features and benefits of the Faster Payment System service to facilitate the public to make person-to-person money transfers and pay bills by scanning QR codes.
• Publicised the lowering of the eligible age for applying the HKMC Annuity Plan from 65 to 60.
• Further reminded the public of banknote security features.
63
DEPOSIT PROTECTION SCHEME (DPS)
• Continue with system development and planning for comprehensive test to implement electronic payment channels for DPS compensation
• Deepen public understanding of DPS through TV infotainments and social media campaigns
• Broaden the reach to non-Chinese speaking communities via targeted publicity
• The Hong Kong Deposit Protection Board continues with system development to adopt electronic payment channels for dispersing DPS compensation, including the use of Faster Payment System. Before implementing the new electronic payment channels, a comprehensive test involving the banking industry will be conducted to ensure systems and processes are effective.
• In addition to multi-media advertisements, two campaigns were implemented to enhance awareness and understanding of the DPS:
“Street Interviews” social media campaign with videos posted on DPS Facebook fanpage featuring interesting interviews with street passers-by sharing their saving habits.
A five-episode series of one-minute infotainment “Deposits are Protected. Save with Confidence!” which were broadcast on a TV channel to impart knowledge of the core features of the DPS to the mass public.
• To broaden the reach to non-Chinese speaking ethnic communities via advertising placements on targeted media platforms including language-specific newspapers, websites and outdoor TV panels.
64
FINANCIAL INFRASTRUCTURE
65
FINANCIAL INFRASTRUCTURE
• Financial infrastructure remains safe and efficient
• Operation of Bond Connect has been smooth;
actively promote Bond Connect to overseas investors
• Further refine the Hong Kong Trade Repository (HKTR) for over-the-counter derivatives according to the relevant local and international standards
Bond Connect
• Since the launch of Bond Connect on 3 July 2017, the related settlement operations performed by the Central Moneymarkets Unit have been smooth.
• With the Delivery-versus-Payment settlement fully implemented in August 2018, and the inclusion of renminbi-denominated Mainland government and policy bank securities into the Bloomberg Barclays Global Aggregate Index in April 2019 and J.P. Morgan Government Bond Index-Emerging Markets in February 2020, more overseas investors have started to invest in the Mainland interbank bond market via Bond Connect. The HKMA has been maintaining close communications with the People's Bank of China and other relevant Mainland institutions to explore enhancements to Northbound Trading.
Over-the-counter derivatives trade repository
• Since the reporting function of the HKTR was launched in July 2013, reporting by banks to the HKTR has been smooth.
66
FASTER PAYMENT SYSTEM (FPS)
Number of registered accounts
Volume (‘000) Value (HK$ bn)
Average daily turnover of HKD real-time payments
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000
aobile bumber Email Address FtS Identifier
0.0 0.4 0.8 1.2 1.6 2.0 2.4 2.8 3.2 3.6
30 80 130 180 230 280
Oct-18 bov 5ec Jan-19 Feb aar Apr aay Jun Jul Aug Sep Oct bov 5ec Jan-20 Feb aar
Transaction Volume ('000) Transaction Value (HY$ bn) In March 2020 267,000 txn/day HK$3.2 bn/day As at end-March 2020
Mobile number : 3.12 million Email address : 0.78 million
FPS ID : 0.76 million
Total : 4.67 million
No. of registered accounts (‘000)
67
LATEST FINTECH INITIATIVES
Fintech Career Accelerator Scheme (FCAS)
• Around 150 gap year internship positions offered to university students by the HKMA, 22 banks and one SVF operator
Connection of People’s Bank of China Trade Finance Platform and eTradeConnect
• Commenced a cross-border proof-of-concept project on connecting the platforms of the two jurisdictions
Cybersecurity Fortification Initiative (CFI)
• Industry-wide consultation of CFI enhancement underway
Fintech Career Accelerator Scheme – Gap year placement programme
• FCAS is a talent development scheme initiated by the HKMA since 2016 to nurture fintech talents in Hong Kong. Its gap year placement programme offers full-time, semester-based internship positions for university students to work on fintech projects at banks or stored value facility operators.
• In the current intake of 2020/21, the HKMA, 22 banks (including four virtual banks) and one stored value facility operator offered around 150 internship positions, attracting over 1,000 applications.
Connection of PBoC Trade Finance Platform and eTradeConnect
• eTradeConnect was developed by a consortium of 12 banks in Hong Kong.
• In November 2019, a Memorandum of Understanding was signed between the operators of eTradeConnect and People’s Bank of China Trade Finance Platform to conduct a Proof-of-Concept trial on connecting the two platforms.
• The HKMA will continue to facilitate the development of eTradeConnect and its connection with platforms in other regions.
Cybersecurity Fortification Initiative
• The CFI was first launched in 2016. Due to changes in the global cybersecurity landscape, the HKMA considers that there is a need to enhance the existing CFI framework.
68
STORED VALUE FACILITIES (SVFs) AND RETAIL PAYMENT SYSTEMS (RPSs)
• SVF usage continued to grow in Q4 2019:
Accounts in use: 63.1 million (+12.5% year-on-year (yoy))
Average daily transaction value: HK$576 million (+10.1% yoy)
• SVF licensees continue to extend their business reach, e.g. cross-border retail payments, public transport and small merchants
• Continue to oversee six designated RPSs
69
REGULATORY DEVELOPMENT OF THE OVER-THE-COUNTER (OTC)
DERIVATIVES MARKET
• A joint consultation paper with the Securities and Futures Commission (SFC) was published in March 2020 to consult the market on the annual update to the Financial Services Providers (FSP) list for clearing obligations. A conclusion to the consultation is targeted to be published in June with a view to implementing the revised FSP list in January 2021
• As of end-March 2020, the Hong Kong Trade Repository logged 2.64 million total outstanding OTC derivatives trades, covering five asset classes under mandatory reporting requirements, i.e. foreign exchange, interest rate, equity, credit, and commodity derivatives
• Under the Hong Kong OTC Derivatives Clearing Rules (Clearing Rules), authorized institutions (AIs) and licensed corporations (LCs) are already subject to the clearing obligation of specified OTC derivative transactions. In order to capture transactions between AIs/LCs and major dealers outside of Hong Kong that are not AIs or LCs, the concept of FSP was introduced. Under the Clearing Rules, an entity will be designated as a FSP if the entity belongs to a firm on the Financial Stability Board’s global systemically important bank List or on the OTC Derivatives Supervisors Group’s (ODSG) major dealer List, and the entity is a clearing member of major central counterparties.
Specific transactions between a FSP and AIs/LCs are subject to the clearing obligations.
The HKMA and SFC perform annual review of the FSP list to ensure the list remains relevant and appropriate.
70
The Treasury Markets Association (TMA) has adopted Hong Kong Dollar Overnight Index Average (HONIA) as the alternative reference rate for HIBOR. In May 2019, TMA completed a consultation on some technical refinements to HONIA. The consultation outcome was published in December 2019. The HKMA and TMA will continue to engage the industry on promoting the use of HONIA
The HKMA continues to engage the AIs and market participants to prepare for the possible cessation of LIBOR after end-2021
INTEREST RATE BENCHMARKS
71
GOVERNMENT BOND PROGRAMME
• To issue the fifth batch of Silver Bond in 2020 targeting Hong Kong residents aged 65 or above
• To issue iBond in 2020 for subscription by Hong Kong residents aged 18 or above
Institutional part – outstanding as at March 2020:
• 11 Government bonds totalling HK$74.4 billion.
• Two Islamic bonds totalling US$2 billion.
Retail part – outstanding as at March 2020:
• Three Silver Bonds totalling HK$8.8 billion.
72
HONG KONG AS AN
INTERNATIONAL
FINANCIAL CENTRE
73 RMB trade settlement
handled by banks in Hong Kong
RMB TRADE SETTLEMENT AND PAYMENT
Average daily turnover of Hong Kong RMB RTGS System
506.6 672.3 746.8 885.7
0 1,000 2,000 3,000 4,000 5,000 6,000
0 1,000 2,000 3,000 4,000 5,000 6,000
2017 2018 2019 2020
RMB trade settlement (Jan - Feb)
RMB bn RMB bn
Full year 4,206.2
Full year 5,376.3
Full year 3,913.9
0 200 400 600 800 1,000 1,200 1,400
0 200 400 600 800 1,000 1,200 1,400
2017 2018 2019 2020
Jan - Feb Cross-border transactions between Hong Kong and the Mainland Offshore market transactions
RMB bn RMB bn
• In the first two months of 2020, renminbi trade settlement handled by banks in Hong Kong totalled RMB885.7 billion.
• In the first two months of 2020, the average daily turnover of Hong Kong RMB Real Time Gross Settlement (RTGS) system stood at RMB1,192.6 billion.
74
RMB LIQUIDITY POOL AND FINANCING ACTIVITIES
RMB customer deposits and
certificates of deposit (CDs) RMB financing activities
2018
2017 2019 Feb 2020
144.5
105.6
153.7 159.6 212.4
170.6
168.6 173.5 80.0 80.0
0 100 200 300 400 500
0 100 200 300 400 500
2017 2018 2019 Feb 2020
Outstanding PBoC Bills Outstanding RMB bonds Outstanding RMB loans
RMB bn RMB bn
(at period end) (at period end)
0 100 200 300 400 500 600 700 800
0 100 200 300 400 500 600 700
800 Outstanding RMB CDs issued
RMB customer deposits Total
RMB bn RMB bn
• As at end-February 2020, renminbi customer deposits and outstanding renminbi CDs amounted to RMB638.7 billion and RMB25.2 billion respectively, totalling RMB663.9 billion.
• As at end-February 2020, outstanding renminbi loans amounted to RMB159.6 billion.
Outstanding dim sum bonds amounted to RMB173.5 billion. The dim sum bond issuance totalled RMB7.2 billion for the first two months of 2020. In November 2018, PBoC started to issue bills in Hong Kong, which aims to enrich the spectrum of high quality renminbi financial products in Hong Kong and to help build the benchmark yield curve of renminbi bonds in Hong Kong. As at end-February 2020, outstanding PBoC bills amounted to RMB80 billion.
75
Bond Connect Turnover and Participation
Average Daily Turnover Number of Registered Investors
247
503
1,601
1,818
0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000
2017 2018 2019 Mar 2020
No. of Investors
2.2
3.6
10.6
19.3
0 5 10 15 20 25
2017 H2
2018 2019 2020
Q1 RMB bn
(at period end)
• During Q1 2020, Bond Connect recorded 197 trades daily on average. The daily turnover averaged RMB19.3 billion in Q1 2019, up around 82% from the RMB10.6 billion recorded during 2019.
76
MAINTAINING RMB BUSINESS LINKS WITH OTHER JURISDICTIONS
Feb 2020 2019 2018 1 No. of participating banks of Hong Kong's 204 204 200
RMB clearing platform Of which:
172 173 173
Branches and subsidiaries of overseas banks and overseas presence of Mainland banks
2 Amount due to overseas banks 83.9 76.3 80.4
(RMB billion)
3 Amount due from overseas banks 98.2 95.4 132.8
(RMB billion)
• The HKMA continued to expand and deepen its ongoing collaboration with other overseas economies in offshore renminbi business and other areas of financial services.
We also continued our marketing efforts through participation in industry events to promote Hong Kong’s unique role as the gateway to Mainland China.
77
To optimise the Chiang Mai Initiative Multilateralisation (CMIM) arrangement and strengthen regional financial safety net, CMIM members have been taking forward a number of enhancement proposals, including increasing the proportion of International Monetary Fund De-linked Portion in the borrowing package from 30% to 40%, and enabling an option for local currency contribution. Hong Kong, being a member of CMIM (other members including 10 ASEAN member countries and the Mainland of China, Japan and South Korea), is participating in the process
STRENGTHENING REGIONAL FINANCIAL
SAFETY NET
78
Hong Kong has a robust PE industry. The total capital under management by PE funds in Hong Kong reached US$160 billion at end-2019
*
To facilitate the further development of Hong Kong’s PE fund business, the HKMA has been working with an inter-departmental taskforce led by the Financial Services and the Treasury Bureau to develop a new limited partnership regime for PE funds. The relevant bill was gazetted on 20 March 2020 for introduction into LegCo
DEVELOPING HONG KONG’S PRIVATE EQUITY (PE) PLATFORM
* Source: Asian Venture Capital Journal
79
PROMOTING GREEN FINANCE
• The HKMA continues to support green finance to combat climate change. We are pressing ahead with the three measures announced in May 2019, viz (i) a three-phase approach to promote Green and Sustainable Banking, (ii) responsible investment by the Exchange Fund, and (iii) enhancing capacity building through the Centre for Green Finance (CGF)
• Due to COVID-19, the CGF is working in collaboration with strategic partners to reschedule to later this year the Green Week originally scheduled for February 2020
• Riding on the success of the first green bond issuance in May 2019, the HKMA is assisting the Government to issue green bonds totalling HK$66 billion in the coming five years under the Government Green Bond Programme, having regard to market conditions, to promote the development of green finance in Hong Kong
80
INVESTMENT ENVIRONMENT AND PERFORMANCE OF
THE EXCHANGE FUND
81
INVESTMENT ENVIRONMENT IN Q1 2020
• The COVID-19 crisis, compounded by the outbreak of the oil price war, led to significant deterioration in market sentiment and sharp correction in global equities
• Taking US equities as an example, the S&P 500 index tumbled by 30%
from its historical peak in mid-February in just around a month’s time, posing a more rapid correction than the 2008 global financial crisis (GFC)
• In mid-March, the VIX index, widely regarded as the market’s “fear gauge”, also rose to the highest level since the GFC
• For the quarter as a whole, major equity markets generally recorded double-digit percentage losses
• For bond markets, major developed market sovereign bond yields generally declined as major central banks slashed benchmark interest rates and relaunched quantitative easing as a result of COVID-19
• For foreign exchange markets, major currencies generally depreciated against the US dollar as investors sought safe haven assets such as US Treasuries
82
MAJOR DEVELOPED MARKETS
10-YEAR GOVERNMENT BOND YIELDS FELL
83
EQUITY MARKETS CORRECTED SHARPLY
84
MAJOR CURRENCIES FELL AGAINST USD
80 85 90 95 100 105 110
Jan-20 Feb-20 Mar-20
CNY
EUR
JPY
GBP Normalized FX Level Against USD (2019 year-end = 100)
Appreciation
Depreciation
85
INVESTMENT INCOME
* Excluding valuation changes of the Strategic Portfolio.
# This is primarily the effect of translating foreign currency assets into Hong Kong dollar after deducting the portion for currency hedging.
@Including valuation changes of private equity and real estate investments held under the Long-Term Growth Portfolio. Valuations of these investments for the first quarter of 2020 are not yet available.
2020 2019 2018 2017
(unaudited)
(HK$ billion) Q1 Full Year Full Year Full Year
Bonds 54.4 114.5 57.4 34.4
Hong Kong equities* (28.4) 22.1 (20.7) 58.3
Other equities (83.1) 100.7 (38.7) 80.4
Foreign exchange# (29.0) (13.0) (9.0) 53.5
Other investments@ - 37.9 21.9 37.4
Investment (loss)/income (86.1) 262.2 10.9 264.0
86
INCOME AND EXPENDITURE
* The rate of fee payment is 3.7% for 2020, 2.9% for 2019, 4.6% for 2018 and 2.8% for 2017.
# This does not include the 2020 fee payment to the Future Fund because such amount will only be disclosed when the composite rate for 2020 is available.
(The composite rate was 8.7% for 2019, 6.1% for 2018 and 9.6% for 2017. Fee payable to the Future Fund was HK$24.4 billion for 2019, HK$16.4 billion for 2018 and HK$22.7 billion for 2017.)
2020 2019 2018 2017
(unaudited)
(HK$ billion) Q1 Full Year Full Year Full Year
Investment (loss)/income (86.1) 262.2 10.9 264.0
Other income - 0.2 0.2 0.2
Interest and other expenses (6.0) (24.8) (17.9) (9.9)
Net (loss)/income (92.1) 237.6 (6.8) 254.3
Fee payment to Fiscal Reserves*# (9.6) (53.8) (60.2) (46.2) Fee payment to HKSAR government
funds and statutory bodies* (2.9) (9.0) (13.8) (8.6)
