Speech at the Signing Ceremony with the Dao Heng Bank for the Launch of The Hong Kong Mortgage Corporation's Mortgage Backed Securities Programme

Speeches

22 Oct 1999

Speech at the Signing Ceremony with the Dao Heng Bank for the Launch of The Hong Kong Mortgage Corporation's Mortgage Backed Securities Programme

Joseph Yam, Deputy Chairman, The Hong Kong Mortgage Corporation Limited

1. I am delighted to be present at today's signing ceremony with the Dao Heng Bank for the launch of the first batch of securities under the Hong Kong Mortgage Corporation's mortgage-backed securities programme. The launch of this programme today marks a milestone in the history of the Mortgage Corporation and in the development of Hong Kong's debt market.

2. The Hong Kong Mortgage Corporation was founded in March 1997 with a fourfold mission: to develop the secondary mortgage market; to promote banking and monetary stability; to develop the debt market; and, not least, to promote home ownership among the people of Hong Kong. During the first phase of its business development, the Mortgage Corporation has produced notable achievements in all of these fields. Under its mortgage purchase programme, launched in December 1997, the Corporation has so far purchased a total of more than $13 billion in mortgage loans: this has enabled banks to offload mortgages in order to improve their liquidity and reduce risk concentration. In 1998 and 1999 the Corporation has issued $7 billion in unsecured debts under two debt issuance programmes, making it one of the most active issuers of Hong Kong dollar fixed-rate securities. For the home-owner and prospective home-owner, the new mortgage products and initiatives launched by the Corporation have included fixed rate mortgages, introduced in March 1998, and a mortgage insurance programme, introduced in December 1998, to enable home buyers to secure mortgage loans of up to 85% of the loan-to-value ratio.

3. This rapid-paced, innovative, yet practical record of achievements, in the space of a mere two-and-a-half years, has enabled the Mortgage Corporation to serve as a stabilising force in our financial system during a period of considerable economic difficulty. I should add that, as a business, the Corporation has also made healthy profits. Today's launch marks the beginning of the second phase in its business development. The mortgage-backed securities programme represents both a new line of business for the Mortgage Corporation and an important development for Hong Kong's securitisation market. Along with a number of new securities products issued this year, it will also serve to channel, deepen and diversify our debt market and lessen our disproportionate reliance on the banking and equities markets, a process which, as I have urged elsewhere, is essential to the long-term stability of our financial system.

4. The mortgage-backed securities programme holds special attractions for participating banks, for investors, and for the Corporation itself. For the banks involved, the back-to-back structure allows them to keep a substantial portion of the cashflow from mortgages while reducing the credit risk and capital cost and substantially improving the quality of their mortgage assets. For investors, the guarantee by the Mortgage Corporation, with strong backing from the Government, provides protection from default. For the Corporation, the successful launch of this new product will be useful experience for preparing launches of more sophisticated mortgage-backed securities products in the future.

5. Dao Heng Bank's participation in the launch of today's one-billion-dollar issue makes an impressive start to the programme and sets an excellent precedent. It is the latest example in Dao Heng's strong and consistent record of support for the Mortgage Corporation's initiatives. I thank Dao Heng Bank for their participation and congratulate them on the work they are doing in developing this field.

6. Today's launch promises well for future issues of mortgage-backed securities. Looking to the future development of the programme, positive expressions of interest have already been received from a number of banks, and the Mortgage Corporation expects to close other deals in the coming few months. Among these will be a deal with American Express Bank later this year similar to the issue launched today. The aim in the Year 2000 is to issue between three and five billion dollars in mortgage-backed securities.

7. Finally, let me offer my warmest thanks to the Directors and staff of the Hong Kong Mortgage Corporation for the hard effort and imagination they have put into developing this product. It is cause for some celebration that the Corporation has been able to launch the second phase of its business development within only two-and-a-half years of its establishment - the toughest couple of years in Hong Kong's recent economic history - and I hope you will join me in congratulating Directors and staff on the latest in their growing list of achievements.

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Last revision date : 22 October 1999