HKMA announcement on the capital adequacy position of Hong Kong incorporated authorized institutions under the newly implemented revised capital adequacy framework

The Hong Kong Monetary Authority (HKMA) today (Friday) announced that all 72 Hong Kong incorporated authorized institutions (AIs) are now reporting their capital adequacy positions under the newly implemented revised capital adequacy framework set out in the Banking (Capital) Rules, which took effect on 1 January 2007.

The HKMA also revealed that the aggregate capital adequacy ratio (CAR) of Hong Kong AIs at end-December 2006, calculated on the revised basis, was very strong at 13.65%. All individual AIs' CARs under the new regime were above the statutory minimum ratios they are required to meet under the Banking Ordinance.

The new capital adequacy framework represents a major advance on the previous framework, in that it is more risk-sensitive and it requires that capital be held against a wider range of risks (i.e. operational risk, in addition to credit and market risks).

AIs are also given greater flexibility on how they calculate their risk, and are permitted, providing stringent qualifying criteria are met, to make use of internal models to calculate their risk. At present a number of AIs are using market risk models, and the HKMA expects that several AIs will in due course be approved to use credit risk models (the "IRB approach").

Commenting on the new regime, Simon Topping, Executive Director (Banking Policy) of the HKMA, said "Hong Kong AIs are among the first in the world to have successfully implemented this new more advanced capital adequacy framework, which reflects very favourably on the industry. Moreover, the numbers provide further evidence of the safety and soundness of the industry."

Mr Topping added that "Hong Kong AIs' adoption of the more advanced risk management techniques underlying the new framework will put them in a good position to make the most of the growing business opportunities presented by Hong Kong's increasing financial integration with the Mainland and increasing importance as a regional and international financial centre."

For further enquiries, please contact:
Sara Yip, Manager (Press), at 2878 8246 or
Hing-fung Wong, Officer (Press), at 2878 1802

Hong Kong Monetary Authority
4 May 2007