Key Information

inSight
Speeches
Speeches by Speaker
Norman T.L. Chan
Peter Pang
Eddie Yue
Arthur Yuen
Raymond Li
Edmond Lau
Esmond Lee
Meena Datwani
Vincent W.S. Lee
James Lau
Joseph Yam
Y K Choi
William Ryback
David Carse
Tony Latter
Andrew Sheng
Hans Genberg
Simon Topping
Michael Taylor
The Honourable Donald Tsang
Chen Yuan
Dai Xianglong
Don Brash
Jaime Caruana
Andrew Crockett
Mario Draghi
David Eldon
Stanley Fischer
Timothy F. Geithner
Stephen Grenville
Kenneth G. Lay
William McDonough
Ernest Patrikis
Glenn Stevens
Jean-Claude Trichet
Tarisa Watanagase
Zeti Akhtar Aziz
Press Releases
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
Press Releases by Category
Bogus Voice Message Phone Calls
Banking in Hong Kong
Fraudulent Websites, E-mails and Telephone System, and other fraud cases
Granting of Banking Licences
Exchange Fund
Table of Multiples of Notes and Payments for Allotted Amount under non-competitive tender
Table of Multiples of Notes and Payments of Application Amount under non-competitive tender
Tender of Exchange Fund Bills and Notes
Tender Results of Exchange Fund Bills and Notes
Tentative Issuance Schedule for Exchange Fund Bills and Notes
Appointments and Departures
HKMA Pay Review
HKMA Publications
Speeches
The Hong Kong Mortgage Corporation
Hong Kong Note Printing Limited
Hong Kong Institute for Monetary Research
Exchange Fund Investment Limited
Others
Hong Kong Financial Infrastructure
International Relations
Investment Products Related to Lehman Brothers
Monetary Policy
Notes and Coins
Renminbi business
Credit Card Lending Survey
Monetary Statistics
Residential Mortgage Survey
Year 2000
Others
Guidelines and Circulars
Guidelines
Circulars
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
359.3404

Speeches

Governor's Statement

by Norman T.L. Chan, Temporary Alternate Governor, Hong Kong, China

(Speech at the 34th Asian Development Bank Annual Meeting 9-11 May 2001, Honolulu)

11 May 2001

1. Mr President, I would like to take this opportunity to express my gratitude to the people and Government of the United States for their generous hospitality in hosting this year's Annual Meeting of the Asian Development Bank. I would also like to thank the Bank's management and staff for the excellent arrangements. I join others in adding our special welcome to our new member of the Bank -Turkmenistan.

2. I would like to take this opportunity to welcome the successful conclusion of the 7th replenishment of the Asian Development Fund, which should enable the Bank to continue with its programme in offering much needed relief to the poorest people in Asia. While the Asian Development Bank has done a commendable job in seeking to reduce poverty in the region, many Asian economies are still suffering from the devastation caused by the Financial Crisis that erupted a few years ago. The Crisis led to massive destruction of wealth and caused enormous damage to the banking and financial systems of many Asian economies. There are more people now living below the poverty line than before. According to the World Bank estimates, nearly 50% of the population in East Asia, or 857 million people, live on less than two US dollars a day. Out of them, 236 million people live on less than one US dollar a day.

3. So the Asian Financial Crisis has made the work of poverty reduction more daunting and more pressing. The recent slowdown in the US economy and the renewed weakness in the Japanese economy have heightened the risks and uncertainties of the economic prospects of many Asian economies, at least in the short term. This is a timely reminder to all of us of the fragility of the Asian recovery in an era of globalisation of markets with highly volatile capital flows. It will be difficult for the Asian economies to return to the track of stable and sustainable growth if we do not persevere with sound macro-economic policies and with the necessary structural reforms. While the reform agenda is a long one, I would like to underscore the importance of one element: financial sector restructuring. In the past year, the Bank has rightly emphasised lending to social infrastructure, transport and communications, and the agricultural sector. But restructuring of the financial sector should not be overlooked. The financial system, in particular the banking system, is the foundation for economic growth, since a crippled financial sector will be unable to intermediate between savings and investments, thereby leading to prolonged liquidity crunch and inefficient allocation of resources. I therefore hope that the Bank will be able to devote more resources, both in terms of finance and technical assistance, to help member economies to restructure and rebuild their banking and financial systems.

4. In the process of reforming the financial sector, there is the long-standing problem arising from the under-development of the Asian bond market. In Asia there are very few liquid and deep domestic bond markets. At the regional level, the cross border flows of funds through the bond market are even more limited, resulting in unduly heavy reliance on short-term bank finance. At the same time, a large part of the very substantial savings in Asia, both public and private, would first flow to the OECD markets before returning to the region as bank lending, portfolio investments and FDIs. We have witnessed during the Asian Financial Crisis how volatile these kinds of flows can become and how destabilising a sharp reversal of inflows can be.

5. So the Asian bond market is underdeveloped and is not functioning properly. But what can we do? There are many structural impediments blocking the development of bond markets in Asia. These factors include: fragmentation and small size of the markets, lack of harmonisation in the issuance procedures, tax and accounting treatment and poor corporate governance within the region. However, I would highlight one particular problem which has received relatively little attention so far -- it is the gap between the low credit ratings of the Asian issuers and the minimum acceptable ratings required by the official reserve managers and institutional investors in Asia.

6. According to the Standard & Poor's, bond issuers of below single "A" rating comprise 91% of all the rated foreign currency bond issuers in Asia. However, many Asian institutional investors are required to invest in bonds not lower than single "A" rating. This means that there is a big gap between the credit ratings of the Asian issuers and the risk appetite of the Asian investors. It is therefore not surprising that, while the Asian economies collectively hold more than US$1 trillion of official reserves, the bulk of these reserves are financial assets issued in the G7 markets due to credit as well as liquidity considerations.

7. The low credit ratings of Asian issuers will take a long time to resolve because many of the problems are structural in nature. The question is whether there is anything that we can do in the near to medium term to address the credit quality gap between the Asian issuers and investors. Assuming that the Asian investors are not overly keen to lower their minimum credit rating requirement, I believe that securitisation, together with credit guarantee would offer a partial solution to the credit quality problem in Asia. Securitisation offers comfort to investors in that the debt securities are backed by a segregated pool of collateral or future cash flows. At the same time, credit guarantee provides additional protection to investors against default risk. It is therefore possible for a corporate to issue asset-backed securities with credit rating far higher than what it gets on its own. This would allow the Asian borrowers to tap the capital market and broaden the investor base that will otherwise not be accessible. As the experience in the US suggests, asset-backed securities and the use of credit guarantee arrangements have played a crucial role in the development of its bond market in narrowing the gap between the investors' appetite and the borrowers' credit rating. I think that there is a great deal to be gained by studying the usefulness of securitisation and credit guarantee in Asia and how they can be promoted to facilitate the development of the regional bond market.

8. In closing, I would point out that a number of useful studies, including those by the multinational development banks, have been undertaken to identify the impediments that caused the under-development of bond markets in this region. It is now time to take the necessary concrete steps by the national authorities and policy makers. In this connection, I would urge the Asian Development Bank to play a catalytic role in the development of the Asian bond markets by providing the financial as well as technical resources to those who are in need of help. Thank you.

Last revision date: 1 August 2011
ABOUT THE HKMA
The HKMA
Tender Invitations
Careers@HKMA
Legislative Council Issues
Links
The HKMA Information Centre
KEY FUNCTIONS
Monetary Stability
Banking Stability
International Financial Centre
Exchange Fund
PUBLICATIONS & RESEARCH
Annual Report
Half-Yearly Monetary & Financial Stability Report
Quarterly Bulletin
HKMA Background Briefs
Reference Materials
Research
MARKET DATA & STATISTICS
CMU Bond Price Bulletin
Economic & Financial Data for Hong Kong
Monthly Statistical Bulletin
Monetary Statistics
KEY INFORMATION
Press Releases
Speeches
Guidelines & Circulars
Forthcoming Events
inSight
OTHER INFORMATION
Account Opening
Consumer Corner
Consumer Education Programme
Complaints about Banks
Complaints about SVF Licensees
Internet Banking
Fraudulent Bank Websites, Phishing E-mails and Similar Scams
Be Careful of Bogus Phone Calls and SMS Messages
Authenticate the Callers and Bank Hotline Numbers
Register of AIs & LROs
Register of Securities Staff of AIs
Register of SVF Licensees
Investment Products Related to Lehman Brothers
Photo Gallery