Monetary Statistics for March 1998

1. According to statistics published today (30 April) by the Hong Kong Monetary Authority, total deposits continued to rise in March 1998, while loans and advances fell. Table 1 gives a summary and comparisons with earlier months.

Deposits

2. Total deposits increased by a modest 0.1% in March 1998, having risen by 1.5% in February 1998. HK$ deposits rose by 1.5%, following an increase of 1.9% in February, while foreign currency deposits declined by 1.7%, reversing a 0.9% rise in the previous month.

3. During the month, HK$ deposits increased across-the-board, with demand deposits rising by 5.2%, savings deposits by 4.6% and time deposits by 0.2%. The rise in HK$ deposits was in line with reduced volatility in the region's financial markets.

4. As for foreign currency deposits, US$ deposits dropped by 3.0%, having increased by a modest 0.3% in February, while non-US$ foreign currency deposits decreased by 0.1%, after a growth of 1.6% in the previous month.

Loans and advances

5. Total loans and advances fell by 6.7% in March. Much of the drop reflects a 14.2% contraction of offshore loans. In particular, Euroyen Impact Loans (EYIL), which account for more than 30% of total loans and advances of the Hong Kong banking system, have been falling sharply. EYIL are loans made to customers in Japan by a domestic branch of a Japanese bank but booked in an overseas branch of the bank. These loans generally have tax and funding cost advantages for customers. Reflecting the more cautious lending stance by Japanese banks and the need to downsize balance sheets, the decline of EYIL has accelerated, falling by 23% in the first quarter of this year. The impact of the fall in EYIL on Hong Kong's economic activity and credit situation should be small, as Hong Kong serves only as a booking centre for these loans.

6. Meanwhile, reflecting the slow-down in domestic economic activity and reduced loan demand, loans for use in Hong Kong also dropped slightly by 0.8%, with loans for trade financing falling by 2.4%, and other loans declining by 0.6%.

7. During the month, HK$ loans were virtually unchanged, while foreign currency loans dropped by 11.9%. As a result, the HK$ loan-to-deposit ratio declined to 111.3% at end-March, from 113.0% at end-February.

Quarterly analysis of loans for use in Hong Kong by major economic sector

8. Domestic credit fell by 1.2% in the first quarter of 1998, with loans to most sectors registering either a slow-down or a fall, as banks were cautious in lending and loan demand was weakened by higher interest rates. Along with the subdued asset markets, growth of residential mortgage loans slowed to 1.8%, while loans for building, construction and property development and investment dropped by 0.6%. Likewise, lending to financial concerns and stockbrokers also fell by 0.9% and 37.1% respectively. In line with the slack performance of retail sales, loans for wholesale and retail trades dropped by 3.8%, reversing a 4.1% growth in the preceding quarter. Lending to the manufacturing sector fell by 2.7% and loans for trade financing by 5.7%.

Money supply

9. HK$ M1 rose by 1.6% in March, as a 5.2% increase in demand deposits more than offset the decrease of 2.8% in cash held by the public. Meanwhile, HK$M2 and HK$M3 were both up by 1.3%. In the twelve months to March, HK$M1 dropped by 6.5%, but HK$M2 and HK$M3 grew by 7.8% and 7.5% respectively, in line with the growth of nominal GDP.

Note to editor

10. For enquiries, please contact the Press and Publications Section, Hong Kong Monetary Authority. (Telephone number: 2878 8261)

Hong Kong Monetary Authority

30 April 1998