Stability is key, says HK’s top finance official
Print Edition
The head of the Hong Kong Monetary Authority said financial stability is a top priority in protecting the city from financial turbulence and maintaining the competitiveness of its financial sector.
The real competitiveness of Hong Kong’s financial sector is not profit-making, but its conservative style and prudent operation, Chan Tak-lam said in an interview.
The recent decline in the Chinese currency is an inevitable part of the marketization of the yuan’s exchange rate, he said.
The People’s Bank of China’s latest move is an important step for the mainland to improve its capital market openness and promote reform, he said.
“In long term, I don’t believe the yuan will step into a continuous depreciation channel since the mainland’s economy, including exports, is promising,” Chan said.
Speaking of financial stability, he said Hong Kong will always face turmoil of outside financial markets, thus it is necessary to keep the banks’ capital adequacy ratio higher than those of European and American banks.
“Some people criticize the authorities for raising the requirement for Hong Kong banks above the international standard set by the Basel III,” he said.
“I don’t agree.”
Competition between banks should focus on services and stability rather than a business model based on making more profit with a minimum capital adequacy ratio, he said.
The total assets of Hong Kong’s Exchange Fund, the cornerstone of the city’s financial stability, rose to HK$15 trillion (US$2.3 billion) at the end of last year, from HK$350 billion in 1993, Chan said.
“Many people believe that the investment strategy of the Exchange Fund was too conservative, and the fund should be invested in more ways since it has far exceeded the amount needed for sustaining financial stability,” he said.
“The fund has a legal function to maintain Hong Kong’s financial stability and is also the hard-earned money of Hong Kong residents, so we decide that its investment strategy should be pro-conservative and focus on mid-and-long-term return.”
During the global financial crisis broke in 2008, it was the Exchange Fund that the government used to provide a guarantee for all deposits of the city’s banks, Chan said.
“At that time, the total amount of bank deposits was HK$5.8 trillion, while now it is about HK$10.6 trillion. How much we will need to cover the guarantee now? How could we keep depositors and market participants assured without adequate fund?” he said.
He said that as a completely open economy and financial center, Hong Kong will never rule out possibilities of financial crises triggered by outside markets, no matter how cautious the authorities are.
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