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HKMA urges Asia to examine the usefulness of securitisation and credit guarantee for Asian bond issues

In his address to the 34th Annual Meeting of the Asian Development Bank (ADB) held in Honolulu this morning (11 May, Hong Kong time), Mr Norman Chan, Deputy Chief Executive of the Hong Kong Monetary Authority, said that the Asian Financial Crisis had led to massive destruction of wealth and made the work of poverty reduction in Asia more daunting and more pressing. He commended ADB for its contribution to the region in poverty reduction and in facilitating structural reforms. He urged the ADB to increase its focus on financial sector restructuring.

"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," particularly in the banking and financial sector.

"In the process of reforming the financial sector, there is the long-standing problem arising from the under-development of the Asian bond market," said Mr Chan. He added that there are very few liquid and deep domestic bond markets in Asia, and cross border flows of funds through the bond market are limited. While there are many structural impediments affecting the development of the Asian bond markets, he highlighted the problem arising from the low credit rating of the Asian issuers and the minimum ratings required by the institutional investors in the region.

"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 flow. It is therefore possible for a corporate to issue asset-backed securities with credit rating far higher than what it gets on its own," Mr Chan said. "This would allow the Asian borrowers to tap the capital market and broaden the investor base that will otherwise not be accessible," he added.

The experience in the US suggests that asset-backed securities and the use of credit guarantee arrangements have played a crucial role in the development of its bond market by 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," Mr Chan said.

For further enquiries, please contact:
Caitlin Wong, Manager (Press), at 2878 1687 or
Thomas Chan, Senior Manager (Press), at 2878 1480

 

Hong Kong Monetary Authority
11 May 2001

Last revision date: 1 August 2011
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