HONG KONG MONETARY AUTHORITY Annual Report 1996
HONG KONG MONETARY AUTHORITY
NEW MEASURES TO PROMOTE MARKET DEVELOPMENT - MORTGAGE CORPORATION
There are fertile grounds for the development of a mortgage corporation in Hong Kong, as evidenced by a strong increase in outstanding residential mortgage loans, from 8% of GDP in 1980 to 35.2% in 1996.
Promote banking stability
Unlike banks which rely mainly on short-term funding (e.g. short-term customer deposits and interbank deposits) to finance long-term mortgages, a properly developed mortgage corporation can play a useful role in channeling long-term savings, such as insurance and pension funds, to meet the rising demand for long-term home financing. By providing an avenue for banks to offload their mortgage loans, the Mortgage Corporation will reduce concentration and liquidity risks of banks' mortgage business.
Promote the local debt market
The local debt market development will also benefit from the issue of unsecured debt securities and mortgage-backed securities by the Mortgage Corporation. These papers will help meet the rising demand for long-term and quality debt securities by institutional investors.
Fixed mortgage rate promotes monetary stability
Moreover, by encouraging the origination by banks of fixed rate loans which insulate mortgage loan borrowers from short-term volatility in interest rates, the resilience of the monetary system to interest rate shocks arising from volatile capital flows will be enhanced.
| TABLE 5: |
| MORTGAGE CORPORATION IN BRIEF |
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| Ownership |
| 100% owned by the Government through the Exchange Fund. |
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| Capital |
| $1 billion with 5% capital-to-assets ratio. |
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| Structure |
| Limited company registered under the Companies Ordinance, with participation from the public and private sectors on the Board of Directors. |
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| Business Strategy |
| Business scope to be expanded in phases, starting with the purchase of mortgage loans for retained portfolio funded largely by the issue of unsecured paper, followed by the issue of mortgage-backed securities. |
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