In recent days, there had been some vicious rumours circulating on social media platforms and messaging apps about the monetary and financial stability of Hong Kong. Given the current social climate, such rumours could easily give rise to unnecessary anxieties in some quarters. Confidence lays the foundation for the proper functioning of financial markets and is crucial to the maintenance of financial stability. This is why the HKMA has promptly and repeatedly refuted these rumours to reassure the public.
We have emphasised many times that Hong Kong’s banking system is robust and sound, with strong capital positions, ample liquidity and good asset quality. It is well positioned to withstand market shocks. Hong Kong has neither the need nor the intention to change the Linked Exchange Rate System, which has been functioning well and proved to be effective. Article 112 of the Basic Law stipulates that Hong Kong shall safeguard the free flow of capital within, into and out of the Special Administrative Region, and no foreign exchange control policies shall be applied. Coupled with the strong backing of the Exchange Fund, we have the capability, resources and determination to maintain Hong Kong’s monetary and financial stability.
Indeed, the smooth functioning of the monetary and financial systems of Hong Kong in recent months is clear evidence of both the robustness of our systems and the market confidence in us.
Even so, the escalation of violence on the streets has inevitably affected the provision of banking services to the public. During the long weekend in early October, some banking facilities and automated teller machines (ATMs) in Hong Kong were vandalised and set on fire, necessitating a service suspension. Thanks to the tireless efforts of many people working in banks, banknote delivery companies, renovation contractors, IT service providers and other relevant parties, who sacrificed their holidays for the urgent repair of the damaged facilities and replenishment of ATM banknote supplies, cash withdrawals by the public were largely unaffected during the long break, and the vast majority of bank branches and ATMs also resumed service as usual afterwards. The employees of the banks and all the related service providers deserve our respect and gratitude for their professionalism and dedication.
In addition to serving depositors, another important function of banks is to support the real economy, especially small and medium-sized enterprises (SMEs), by extending credit. As mentioned in my last inSight article, amid the weakening global economy, in particular as a result of the US-China trade war, as well as the social incidents in Hong Kong in recent months, our economy is facing significant downside risks. The financial burden on corporates, especially SMEs, is increasing. The HKMA is very concerned about the situation. We think that, while ensuring banking stability, there is a need as well as room for us to take certain measures to support SME financing. As a first step, we introduced in September a new relief measure for the 80% Guarantee Product of the SME Financing Guarantee Scheme through HKMC Insurance Limited, a wholly owned subsidiary of The Hong Kong Mortgage Corporation Limited (HKMC), allowing the repayment of only the interest and not the principal temporarily.
Meanwhile, colleagues from our Banking Supervision Department and the HKMC have recently met with Legislative Council members as well as representatives from the commerical sector and banks active in SME financing to exchange views and better understand the operating conditions and funding needs of SMEs. To follow up on the opinions received, we have established a banking sector SME lending coordination mechanism, with members consisting of representatives from the HKMA, the Hong Kong Association of Banks, nine major banks, and the HKMC. A meeting will be held later this week to discuss specific implementation details with the aim of allowing banks to strengthen funding support for SMEs as far as their credit and risk management policies allow. Our initial proposals include clarifying the regulatory requirements on credit risk management with a view to facilitating banks’ arrangements such as deferral of principal payment or loan extension to lessen the pressure on SMEs’ cash flow; strengthening banks’ internal communication so that frontline staff will have a clear understanding of their banks’ policy on supporting SMEs; and setting up an industry platform to collect SMEs’ views on banks’ and Government’s support policies.
In addition, we announced earlier today a reduction of the Countercyclical Capital Buffer (CCyB) ratio of banks in Hong Kong to 2.0% from the existing 2.5%. The CCyB, introduced in line with international standards in 2016, aims at ensuring that banks will prepare for a rainy day and build up their capital buffer when the economy is good. This buffer can be deployed in times of a downturn, allowing banks to continue providing credit to support the real economy. The ratio was adjusted upward progressively in the past few years to reach the current level of 2.5% of a bank’s risk-weighted assets. As the CCyB mechanism is designed to allow adjustment to the ratio based on actual circumstances, we have decided, after carefully considering recent changes to Hong Kong’s economic environment, to reduce the ratio by 0.5 percentage point according to the mechanism. Assuming the composition of banks’ loan portfolio remains broadly the same, this downward CCyB adjustment will permit banks to release an additional HK$200-300 billion of bank credit. We hope that banks will make good use of the newly released headroom to support SMEs.
We will continue to maintain close liaison with the banking industry and commercial sectors with a view to helping corporates tide over current difficulties as far as possible without compromising Hong Kong’s financial stability. We also hope that social order will soon be restored so that banks will be able to operate and provide services to corporates and members of the public as usual.
Hong Kong Monetary Authority
14 October 2019