HKMA Annual Report 2005

The Hong Kong Monetary Authority (HKMA) today (Friday) published its Annual Report for 2005. The Report reviews trends and events in monetary and banking affairs and reports on the HKMA's work during the year. It also sets out plans for the coming year.

Mr Joseph Yam, Chief Executive of the HKMA, said in his statement in the Annual Report that the exchange and money markets had been largely stable during the year despite massive fund flows arising from speculation about revaluation of the renminbi and initial public offerings in the stock market. The three refinements to the Linked Exchange Rate system introduced in May 2005 anchor exchange rate expectations on the strong side, had discouraged speculative inflows, and promoted the smooth functioning of the money and foreign exchange markets in accordance with Currency Board arrangements.

Hong Kong enjoyed robust economic growth in 2005, following a strong and broad-based recovery in 2004. Benefiting from the buoyant domestic economy, the banking sector had performed strongly in 2005, with retail banks' aggregate pre-tax operating profits increasing by 8.2% compared with 2004. But the operating environment of the banking sector was not without challenges. "Continued competition and pressure on costs are likely to make the operating environment challenging for the banks in 2006," said Mr Yam.

The Annual Report contains the audited Exchange Fund accounts for 2005. The format and contents of the accounts reflect the changes arising from the new international accounting standards adopted in Hong Kong. Major changes include the implementation of Hong Kong Accounting Standards 32 and 39 relating to disclosure, presentation, recognition and measurement of financial instruments. The Exchange Fund, which is managed by the HKMA, earned an investment income of HK$38.2 billion in 2005. The Fund's rate of return exceeded that of the investment benchmark approved by the Financial Secretary on the advice of the Exchange Fund Advisory Committee by more than 0.2%.

Developments in the banking sector during 2005 included the enactment of the Banking (Amendment) Ordinance 2005; continued preparation for the launch of the Deposit Protection Scheme in 2006; and the introduction of two-factor authentication to improve the safety and security of Internet banking. Other developments included the listing in Hong Kong of two key components of the second phase of the Asian Bond Fund, the Pan Asia Bond Index Fund and the Hong Kong Bond Index Fund; the expansion of the scope of renminbi business in Hong Kong; a review of Hong Kong's financial infrastructure development; the launch of the CMU Bond Price Bulletin; and the establishment of the Treasury Markets Association.

The expanded system of Exchange Fund Advisory Committee Sub-Committees functioned well in 2005, the first full year of operation since its introduction in 2004.

The HKMA Annual Report 2005 may be purchased at the HKMA Information Centre or by post at HK$100 per copy. A mail order form for the purchase of the Report is available on the HKMA's website. The Report is also available in interactive form on the website http://www.info.gov.hk/hkma/ar2005/english/index.htm. Accompanying the Annual Report is a separate publication, An Introduction to the Hong Kong Monetary Authority, which contains the summary version of the Annual Report. This booklet is available free of charge at the HKMA Information Centre.

For further enquiries, please contact:
Hing-fung Wong, Resource Co-ordinator, at 2878 1802 or
Thomas Chan, Senior Manager (Press), at 2878 1480

Hong Kong Monetary Authority
21 April 2006