It is a pleasure to welcome you all to this Second High-Level
Policy Dialogue under the APEC Initiative on Development of
Securitisation and Credit Guarantee Markets. We are honoured that
Mr Gwang-Lim Kim and Mr Jamil Kassum will be opening this Dialogue,
and the excellent list of participants promises a very constructive
and lively discussion.
Hong Kong, China is pleased to co-chair, with Korea and
Thailand, the APEC Initiative on Development of Securitisation and
Credit Guarantee Markets. On behalf of all three co-chairs, I would
like to extend our sincere thanks to the World Bank for its
considerable contributions to this Initiative. These contributions
range from active participation to sponsoring experts to provide
technical advice to APEC member economies on how to develop their
domestic securitisation and credit guarantee markets.
It is generally recognised that there is considerable room for
improvement in the efficiency of financial intermediation in this
region. The bulk of savings find their way back to the region
largely in the form of foreign portfolio flows and short-term
banking credits, which present risks to financial stability. Local
corporations have been relying too much on bank credits and equity
markets as the major sources of financing.
Among the various measures that have been put forward to address
the structural impediments to the development of the bond market,
securitisation, coupled with credit enhancement, provides the most
effective and immediate solution. Securitisation enables borrowers
to issue asset-backed securities that can enjoy a credit rating
higher than a single borrower can obtain on its own. When combined
with credit enhancement and guarantee arrangements, these
securities can further attain a credit rating high enough to meet
the requirements of investment managers. Securitisation will also
help smaller corporations gain access to regional bond markets and
reduce their reliance on short-term commercial bank finance.
Securitisation is gradually gaining momentum in Hong Kong. The
Hong Kong Mortgage Corporation (HKMC) has been issuing
mortgage-backed securities since 1999. More recently, synthetic
securitisation and credit card receivables securitisation
transactions began to appear. Not only is securitisation a tool for
developing the bond market, it is also useful for financing
infrastructure projects. The Hong Kong SAR Government intends to
securitise the income receipts of five toll tunnels and the Tsing
Ma Bridge to raise more than HK$6 billion in the coming months.
It is against this background that the idea for this APEC
Initiative was conceived. The objectives of the Initiative are to
promote the understanding and awareness of the importance of
securitisation and credit guarantees to bond market development in
the region, and to assist APEC member economies in identifying
market impediments and taking concrete steps to remove them. We
tackle the impediments in the domestic bond markets first, so that
the regional bond market can be developed from liquid and deep
domestic bond markets.
The Initiative comprises two core parts. The first part involves
expert panel visits to the APEC economies interested in developing
their domestic securitisation and credit guarantee markets. The
first panel visits, to China and Mexico, were launched in 2003, and
a second panel visit was made to Thailand earlier this month. Draft
action plans have been prepared for the economies receiving expert
advice. The second
part of the Initiative involves the holding of policy dialogues to
promote understanding and exchange views about securitisation and
credit guarantee markets. The first policy dialogue under the
Initiative was held in April 2003 in Seoul, Korea. We are delighted
that Hong Kong is now the host for this second policy dialogue.
This APEC Initiative aims at developing the bond markets from
the supply perspective. Two other initiatives in the region tackle
the issue in a complementary way. An initiative by ASEAN+3 focuses
on facilitating access for a wide variety of issuers to the
regional bond markets and on creating an environment conducive to
the development of bond markets. Working groups have been
established to examine the creation of new securitised debt
instruments, issuance of debt by international financial
institutions, regional credit guarantees and enhancement
facilities, as well as the establishment of local and regional
credit rating and credit enhancement agencies.
Meanwhile, a group under EMEAP is developing the Asian Bond Fund
(ABF). The first phase of ABF, or ABF1, has a size of about US$1
billion and was launched in June 2003. The Fund is now fully
invested in US dollar denominated bonds issued by sovereign and
quasi-sovereign issuers in EMEAP economies. ABF1 is an important
step forward in promoting the efficiency of financial
intermediation in the region. It helps to channel a small portion
of the very sizeable official reserves held by the Asian economies
back into the region. After the launch of ABF1, the EMEAP Group is
now studying the extension of the ABF concept to local
currency-denominated Asian bond funds, or ABF2.
ABF2 will have a positive impact on the demand and supply of
local currency bonds in the region, as well as improving the market
infrastructure. On the supply side, ABF2 will provide a new asset
class to international investors who wish to have a
well-diversified exposure to Asia's bond market. On the demand
side, the investment of EMEAP Group in ABF2 will help foster an
increased interest in Asian currency bonds amongst domestic and
regional investors. Individual EMEAP economies can also leverage on
the interest and momentum generated from the collective investment
of the EMEAP central banks to further develop their domestic bond
markets by improving their market infrastructure and removing
market impediments. This should further contribute to the
broadening and deepening of local currency bond markets in the
region.
I think you will agree with me that the heterogeneous nature of
the bond markets in this region presents considerable difficulties
to developmental efforts. However, I am very pleased to note the
many initiatives now in place, and governments have moved from
"words" into "action". Academics and market practitioners have also
been supporting the public sector initiatives by providing valuable
and practical advice on the action plans to remove market
impediments. The timing for development has never been better. Let
us continue to work closely together, through bond market
development, to enhance the diversity, and therefore the stability
and efficiency, of financial intermediation in the region.
Thank you.
