The Hong Kong Mortgage Corporation Limited (HKMC) made the following announcements today (21 July 1999):
Half-year financial results
The unaudited interim results (Annex A) show that the operating profit after tax for the six months ending 30 June 1999 was HK$153.3 mn, an increase of HK$128.5 mn, or 518.1%, over the corresponding period last year. The annualised return on average shareholder's equity was 14.1% (5% in 1998).
Total assets increased by 148.7% from HK$4,258.3 mn to HK$10,589.7 mn as compared to the corresponding period last year. The annualised return on monthly average total assets was 2.7% (2% for the first half of 1998).
General provisions for bad and doubtful debts amounting to HK$5.1 mn was charged to the Profit and Loss Account as at 30 June 1999. No specific provision needed to be made for the period, reflecting the satisfactory credit quality of the mortgage portfolio. The capital-to-assets ratio remained high at 11.7%.
Mortgage-backed Securities
The Board of Directors has given its approval in principle for the Corporation to launch mortgage-backed securities (MBS) under a pilot scheme.
Under the proposed scheme, the HKMC will purchase mortgages from individual banks and then transfer the mortgage pool to a special purpose vehicle (SPV). The SPV will then issue MBS back to the originating bank with the HKMC's guarantee of the timely payment of principal and interest in return for a guarantee fee. The bank can either hold the MBS in its own portfolio or on-sale the securities to other investors. The structure of the MBS is shown in the diagram at Annex B.
In commenting on the recent developments of the HKMC, Mr. Donald Tsang, Chairman of the HKMC, said, "I am very pleased with the performance of the HKMC. The interim results are encouraging. It is also reassuring to see that the mortgage portfolio is of exceptionally high quality."
Mr. Joseph Yam, Deputy Chairman of the HKMC, said, "The MBS product to be launched by the HKMC will be of mutual benefit to the banks and the Corporation. For the banks, the HKMC's guarantee for the timely payment of principal and interest will substantially reduce the credit risk of the mortgage loans and hence the need to make provisions. The exposure to the guarantee of the HKMC, which is a Public Sector Entity, will also result in savings in capital cost. For the HKMC, the product will open a new line of business. The experience to be gained from this relatively simple structure will be valuable for the subsequent launch of more complicated MBS products."
The Hong Kong Mortgage Corporation Limited
21 July 1999
Annexes
