Published October 15, 2008
HK guarantees deposits, sets up fund for banks to access capital Email this article Print article Feedback
(HONG KONG) The Hong Kong Monetary Authority (HKMA) will use its foreign exchange reserves to guarantee bank deposits, shoring up confidence in lenders after the first run on a bank in the city in more than a decade.
Shoring up confidence: (from left), Mr Yam, Mr Tsang and Raymond Li, HKMA executive director of banking development, at yesterday's briefing. Mr Tsang says the two measures are precautionary and pre-emptive. and show Hong Kong's determination to safeguard its depositors and banking system The government will also set up a fund from which banks can access additional capital if needed, John Tsang, Hong Kong's Financial Secretary, said yesterday.
HKMA chief executive Joseph Yam said that the city's banks have 'very low'
levels of bad loans and are unlikely to need assistance from the government.
'These two measures are precautionary and pre-emptive,' Mr Tsang said. 'They show our determination to safeguard our depositors and banking system.'
The collapse of Lehman Brothers last month deepened turmoil in credit markets that has forced European governments to take over some banks and prompted Indonesia, Australia and New Zealand to extend deposit guarantees.
Hundreds of Hong Kong investors have protested at possible losses on Lehman-linked investments, while Bank of East Asia last month suffered a brief run on deposits.
'It's likely to improve liquidity step-by-step,' said Sebastien Barbe, a strategist at Calyon, the investment banking unit of France's Credit Agricole, in Hong Kong. 'It's doing the same thing as all the big central banks in the world.'
The run on Bank of East Asia, Hong Kong's third-biggest lender by assets, was sparked by rumours spread by text message questioning the institution's financial health. The bank and the monetary authority have said that the lender is healthy, and police investigating the rumours arrested an 18-year-old man.
Money market rates have risen as the deepening global financial crisis makes banks reluctant to lend to one another. Hong Kong's benchmark three- month interbank offered rate, or Hibor, almost doubled to 4.4 per cent yesterday from a month ago. Some smaller banks are offering high interest rates to woo deposits.
The new capital facility will provide funds on a case-by-case basis should any bank needs it, Mr Yam said, declining to say how big the fund would be.
Both measures are effective immediately and will remain in force until the end of 2010, when Hong Kong will decide whether they need to be extended in the light of international financial conditions at the time, Mr Tsang said.
'The measures are precautionary, and as such, they do not expect to have to inject capital,' Glenn Maguire, chief Asia economist at Societe Generale in Hong Kong, said in a research note to clients. 'The move augments international initiatives and is aimed more at the consumer sector than the wholesale sector.'
Hong Kong had US$160.6 billion foreign currency reserves as at end of September, according to the HKMA's website. Deposits in the city totalled HK$6 trillion
(S$1.1 trillion), Mr Yam said. 'There is a very low possibility of local banks failing. I hope the measures we roll out today can help strengthen our banking system.'
Hong Kong depositors managed to get back all their savings, plus interest, when the Bank of Credit and Commerce Hong Kong Ltd went into liquidation in 1991, the last major failure, Mr Yam said. The bank failed after its Luxembourg-based parent collapsed.
Yesterday's measures come two weeks after the HKMA said that it would provide more liquidity to banks by accepting more securities in repurchase transactions. - Bloomberg
HK guarantees deposits, sets up fund for banks to access capital Email this article Print article Feedback
(HONG KONG) The Hong Kong Monetary Authority (HKMA) will use its foreign exchange reserves to guarantee bank deposits, shoring up confidence in lenders after the first run on a bank in the city in more than a decade.
Shoring up confidence: (from left), Mr Yam, Mr Tsang and Raymond Li, HKMA executive director of banking development, at yesterday's briefing. Mr Tsang says the two measures are precautionary and pre-emptive. and show Hong Kong's determination to safeguard its depositors and banking system The government will also set up a fund from which banks can access additional capital if needed, John Tsang, Hong Kong's Financial Secretary, said yesterday.
HKMA chief executive Joseph Yam said that the city's banks have 'very low'
levels of bad loans and are unlikely to need assistance from the government.
'These two measures are precautionary and pre-emptive,' Mr Tsang said. 'They show our determination to safeguard our depositors and banking system.'
The collapse of Lehman Brothers last month deepened turmoil in credit markets that has forced European governments to take over some banks and prompted Indonesia, Australia and New Zealand to extend deposit guarantees.
Hundreds of Hong Kong investors have protested at possible losses on Lehman-linked investments, while Bank of East Asia last month suffered a brief run on deposits.
'It's likely to improve liquidity step-by-step,' said Sebastien Barbe, a strategist at Calyon, the investment banking unit of France's Credit Agricole, in Hong Kong. 'It's doing the same thing as all the big central banks in the world.'
The run on Bank of East Asia, Hong Kong's third-biggest lender by assets, was sparked by rumours spread by text message questioning the institution's financial health. The bank and the monetary authority have said that the lender is healthy, and police investigating the rumours arrested an 18-year-old man.
Money market rates have risen as the deepening global financial crisis makes banks reluctant to lend to one another. Hong Kong's benchmark three- month interbank offered rate, or Hibor, almost doubled to 4.4 per cent yesterday from a month ago. Some smaller banks are offering high interest rates to woo deposits.
The new capital facility will provide funds on a case-by-case basis should any bank needs it, Mr Yam said, declining to say how big the fund would be.
Both measures are effective immediately and will remain in force until the end of 2010, when Hong Kong will decide whether they need to be extended in the light of international financial conditions at the time, Mr Tsang said.
'The measures are precautionary, and as such, they do not expect to have to inject capital,' Glenn Maguire, chief Asia economist at Societe Generale in Hong Kong, said in a research note to clients. 'The move augments international initiatives and is aimed more at the consumer sector than the wholesale sector.'
Hong Kong had US$160.6 billion foreign currency reserves as at end of September, according to the HKMA's website. Deposits in the city totalled HK$6 trillion
(S$1.1 trillion), Mr Yam said. 'There is a very low possibility of local banks failing. I hope the measures we roll out today can help strengthen our banking system.'
Hong Kong depositors managed to get back all their savings, plus interest, when the Bank of Credit and Commerce Hong Kong Ltd went into liquidation in 1991, the last major failure, Mr Yam said. The bank failed after its Luxembourg-based parent collapsed.
Yesterday's measures come two weeks after the HKMA said that it would provide more liquidity to banks by accepting more securities in repurchase transactions. - Bloomberg
