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Macroeconomy / Monetary conditions Assessment of risk on Hong Kong’s financial stability Latest developments in the banking sector Investment income of the Exchange Fund in the first quarter of 2010. GLOBAL ECONOMIES RECOVERING AT DIFFERENT SPEEDS. GDP. - PowerPoint PPT Presentation
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2
1. Macroeconomy / Monetary conditions
2. Assessment of risk on Hong Kong’s financial stability
3. Latest developments in the banking sector
4. Investment income of the Exchange Fund in the first quarter of 2010
3
GLOBAL ECONOMIES GLOBAL ECONOMIES RECOVERING AT DIFFERENT SPEEDSRECOVERING AT DIFFERENT SPEEDS
Sources: CEIC, Consensus Forecasts (May 2010)
GDP
90
100
110
120
130
2008 2009 2010 2011
1Q 2008=100
90
100
110
120
130
1Q 2008=100
ConsensusForecasts
2012
US
Asia(exclude Japan)
Euro area
4
0 50 100 150 200 250
Japan
Greece
Italy
US
Portugal
Ireland
UK
Spain
0 50 100 150 200 250
20072010 projections
General government debt (% of GDP)
50%
30%
70%
80%
30%
40%
75%
5%
Debt held bynon-residents
(% of debt)
SOVEREIGN DEBT PROBLEMS:SOVEREIGN DEBT PROBLEMS:GOVERNMENT DEBT IN EUROPE, US AND JAPANGOVERNMENT DEBT IN EUROPE, US AND JAPAN
Sources: IMF World Economic Outlook (April 2010), eurostat 、 European Commission AMECO database, CEIC, Government data published by the countries, Internet news
5
EUROPEAN SOVEREIGN DEBT PROBLEMS: EUROPEAN SOVEREIGN DEBT PROBLEMS: CDS SPREADSCDS SPREADS
Source: Bloomberg
0
100
200
300
400
500
600
700
800
900
1000
2008 2009 2010
bps
0
100
200
300
400
500
600
700
800
900
1000
bps
Portugal Ireland
Italy Greece
Spain
Prices of 5-year sovereign CDS
6
SOVEREIGN DEBT PROBLEMS: GREEK SOVEREIGN DEBT PROBLEMS: GREEK GOVERNMENT BOND YIELD AND GOVERNMENT DEBTGOVERNMENT BOND YIELD AND GOVERNMENT DEBT
Sources: EcoWin, European Commission AMECO database, and Reuters
0
2
4
6
8
10
12
14
16
18
20
* ECU before 1999
ppt
0
50
100
150
200
250
300
350
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Euro bn*
Greece outstanding government debt (rhs)
Greece 10-year government bond yields over German bunds (lhs)
19/6/00: Greece metthe requirements forjoining the euro zone
1/1/01: Greeceadopted euro
BBB
A+
downgradedby 3 notches
to BB+
Standard & Poor's credit ratings
7
SOVEREIGN DEBT PROBLEMS: SOVEREIGN DEBT PROBLEMS: CDS SPREAD OF GREECECDS SPREAD OF GREECE
Source: Bloomberg
0100200300400500600700800900
1000
2008 2009 2010
bps
01002003004005006007008009001000
bps
Bankruptcy ofLehman Brothers
57 bps
End-2009283 bps
Prices of 5-year sovereign CDS
8
EU/IMF MEASURES TO AVERT EU/IMF MEASURES TO AVERT A SOVEREIGN DEBT CRISIS IN EUROPEA SOVEREIGN DEBT CRISIS IN EUROPE
• Loans and guarantees up to €750 billion are provided to the EU members by the EU and the IMF (earlier EU and IMF has agreed to provide Greece with a financing package of €110 billion)
• European Central Bank to buy government and private bonds in the secondary market and provide up to 6-month liquidity to the European banking sector
• Re-open the US dollar liquidity swap facilities between the Federal Reserve and other major central banks
• Other heavily indebted countries have also announced measures to reduce fiscal deficits and government debts
9
MOVEMENTS OF THE EURO EXCHANGE RATEMOVEMENTS OF THE EURO EXCHANGE RATE
Sources: Bloomberg and CEIC
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
99 00 01 02 03 04 05 06 07 08 09 10
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
USD/EUR USD/EUR
Eurodepreci at i on
Late-Oct 20000.83 USD/EUR
Late-Apr 20081.60 USD/EUR
19 May 20101.22 USD/EUR
1 Dec 20091.51 USD/EUR
End-20041.36 USD/EUR
10
HONG KONG ECONOMIC SITUATION:HONG KONG ECONOMIC SITUATION:REAL GDP GROWTHREAL GDP GROWTH
-6
-4
-2
0
2
4
6
8
10
12
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
% point
-6
-4
-2
0
2
4
6
8
10
12% qoq
Net exports (lhs)
Fixed investment and inventory (lhs)
Government consumption (lhs)
Private consumption (lhs)
Real GDP (rhs)
2008 2009 2010
Change in Real GDP
11
HONG KONG ECONOMIC SITUATION:HONG KONG ECONOMIC SITUATION:LABOUR MARKETLABOUR MARKET
5.4%
8.5%
4.0
4.5
5.0
5.5
Sep-09 Nov-09 Jan-10 Mar-10 May-10
4.0
4.5
5.0
5.5
Moderation ofunemployment
rate
% %
4.9
4.4
Unemployment Rate
0
2
4
6
8
10
2000 2002 2004 2006 2008 2010
0
2
4
6
8
10% of labour force % of labour force
12
1. Macroeconomy / Monetary conditions
2. Assessment of risk on Hong Kong’s financial stability
3. Latest developments in the banking sector
4. Investment income of the Exchange Fund in the first quarter of 2010
13
ASSESSMENT OF RISK ON HONG KONG’S ASSESSMENT OF RISK ON HONG KONG’S FINANCIAL STABILITY: INFLATIONFINANCIAL STABILITY: INFLATION
Inflation Trend of Mainland and Hong Kong
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2009 2010 2011
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Headline CCPI inflation rate -Hong Kong
% YoY % YoY
CPI inflation rate - China
Consensus forecasts
14
ASSESSMENT OF RISK ON HONG KONG’S ASSESSMENT OF RISK ON HONG KONG’S FINANCIAL STABILITY: INFLATIONFINANCIAL STABILITY: INFLATION
-15
-12
-9
-6
-3
0
3
6
9
12
15
90 92 94 96 98 00 02 04 06 08 10
% yoy
-15
-12
-9
-6
-3
0
3
6
9
12
15% yoyCPI excluding rent
Retained import unit value index
Retained import prices and consumer prices
15
ASSESSMENT OF RISK ON HONG KONG’S ASSESSMENT OF RISK ON HONG KONG’S FINANCIAL STABILITY: EQUITY MARKETFINANCIAL STABILITY: EQUITY MARKET
Hong Kong and Asia Pacific equity market performance
0
50
100
150
200
250
Nov Jan Mar May Jul Sep Nov Jan Mar May
0
50
100
150
200
250
2008 2009 2010
Lehman Brothersfiled Chapter 11
Debt Standstillof Dubai World
Greek debtcrisis unfolding
Rebased to Oct 27, 2008 = 100
Hong Kong'sHang Seng Index
MSCI AC Pacific(excl. HK & Japan)
16
ASSESSMENT OF RISK ON HONG KONG’S ASSESSMENT OF RISK ON HONG KONG’S FINANCIAL STABILITY: EQUITY MARKETFINANCIAL STABILITY: EQUITY MARKET
Share of stock-market-related loans to total domestic loans
0
2
4
6
8
10
12
1997Q1
1998Q1
1999Q1
2000Q1
2001Q1
2002Q1
2003Q1
2004Q1
2005Q1
2006Q1
2007Q1
2008Q1
2009Q1
2010Q1
%
0
2
4
6
8
10
12
%
Non-margin lending
Margin lending
17
ASSESSMENT OF RISK ON HONG KONG’S ASSESSMENT OF RISK ON HONG KONG’S FINANCIAL STABILITY: FINANCIAL STABILITY: PROPERTY MARKETPROPERTY MARKET
Residential property prices and transaction volume
0
20
40
60
80
100
120
140
1996 1998 2000 2002 2004 2006 2008 2010
0
5
10
15
20
25
30
35
40Luxury market (at or above 100 sq. m.) (lhs)
Mass market (below 100 sq. m.) (lhs)
Total transaction volume (rhs)
Sale & Purchase Agreement ('000)Q3 1997 = 100
109.0
82.8
60
65
70
75
80
85
90
95
100
105
110
Jan Apr Jul Oct Jan
60
65
70
75
80
85
90
95
100
105
110Q3 1997 = 100Q3 1997 = 100
2009 2010
18
ASSESSMENT OF RISK ON HONG KONG’S ASSESSMENT OF RISK ON HONG KONG’S FINANCIAL STABILITY: FINANCIAL STABILITY: PROPERTY MARKETPROPERTY MARKET
Outstanding mortgage loans
* There is a break in data series at December 2000 due to an increase in the number of surveyed institutions.
-4
0
4
8
12
1996 1998 2000 2002 2004 2006 2008 2010
-4
0
4
8
12Change from 3 months ago (%) %
*
-4
-2
0
2
4
6
Jan Jul Jan Jul Jan
-4
-2
0
2
4
6
2.7
2.1
4.1
Change from 3 months ago (%) %
2008 2009 2010
19
Mortgage rate over 10%
ASSESSMENT OF RISK ON HONG KONG’S ASSESSMENT OF RISK ON HONG KONG’S FINANCIAL STABILITY: FINANCIAL STABILITY: PROPERTY MARKETPROPERTY MARKET
Mortgage repayment-to-income ratio
Note: For the luxury market, the ratio is calculated based on the 95th percentile income of households residing in private housing. For the mass market, it is based on the median income of households residing in private housing.
Mortgage rate below 2.5%
0
20
40
60
80
100
120
140
160
1996 1998 2000 2002 2004 2006 2008 2010
0
20
40
60
80
100
120
140
160Luxury market (at or above 100 sq. m.)
Mass market (below 100 sq. m.)
% of household income %
20
ASSESSMENT OF RISK ON HONG KONG’S ASSESSMENT OF RISK ON HONG KONG’S FINANCIAL STABILITY: FINANCIAL STABILITY: PROPERTY MARKETPROPERTY MARKET
• Repayment amount will rise by about 30%, assuming no change in repayment period
If mortgage interest rate rises by 300 bps,
Impact of mortgage rate increase on mortgage repayment-to-income ratio
30
40
50
60
70
80
90
100
Jan Apr Jul Oct Jan
30
40
50
60
70
80
90
100Luxury market (100 sq. m. or above)Mass market (below 100 sq. m.)
2009 2010
% of household income %
21
ASSESSMENT OF RISK ON HONG KONG’S ASSESSMENT OF RISK ON HONG KONG’S FINANCIAL STABILITY: FINANCIAL STABILITY: CAPITAL FLOWSCAPITAL FLOWS
7.70
7.75
7.80
7.85
7.90
7.95
HKD/USD7.70
7.75
7.80
7.85
7.90
7.95
2008 2009 2010
HKD/USD
Convertibility Zone
Spot exchange rateappreciation of HKD
22
0
100
200
300
400
500
600
700
800
900
3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10
HK$ billion
Aggregate Balance Outstanding EFBN
Inflowsbetween2008Q4
and2009Q4
wereHK$640billion
Note: The Outstanding EFBN and the Aggregate Balance are quarter-end figures.
no netinflows
in2010Q1
Inflow of funds into HKD
ASSESSMENT OF RISK ON HONG KONG’S ASSESSMENT OF RISK ON HONG KONG’S FINANCIAL STABILITY: FINANCIAL STABILITY: CAPITAL FLOWSCAPITAL FLOWS
No net inflows in 2010Q1
23
0
100
200
300
400
500
600
2006 2007 2008 2009 2010 Q1
HK$ billion
Note (1): Equities funds raised include IPO, right issues, placings, open offers, consideration issues, warrants exercised andshare option scheme.Note (2): 2008-2009 figures differ from those provided by the HKEx as the activities which did not involve HKD flows havebeen excluded.
Inflow of fundsinto HKD
Funds raised
Equity fund-raising activities and inflows
ASSESSMENT OF RISK ON HONG KONG’S ASSESSMENT OF RISK ON HONG KONG’S FINANCIAL STABILITY: FINANCIAL STABILITY: CAPITAL FLOWSCAPITAL FLOWS
24
• The low-interest-rate environment and monetary easing in the US and the euro area will persist for some time.
• Funds that flowed into the Hong Kong dollar during late-2008 and 2009 have not left Hong Kong. More funds might flow into the Hong Kong dollar if fund-raising activities in the equity market become more active again in the second half of the year.
• Given the exceptionally low interest rate, abundant liquidity and positive economic conditions, the risk of an asset bubble (especially in the property market) forming in Hong Kong has not lessened.
CONCLUSIONCONCLUSION (1) (1)
25
• The HKMA has taken supervisory measures requiring banks to manage their credit risk properly. The loan-to-value ratio for residential mortgages on properties valued at $20 million or more has been lowered to 60% (At the same time, the Government has taken steps to reduce the risk of a bubble forming in the property market through managing the supply of land and introducing other measures).
• Home-buyers should be alert to the risk of over-stretching themselves in applying for mortgages. Otherwise, they might face difficulties in repaying the loans when interest rates rise to a normal level.
• Investors should exercise caution as external factors affecting capital flows and interest rate movements in Hong Kong are clouded with uncertainties.
CONCLUSIONCONCLUSION (2) (2)
26
1. Macroeconomy / Monetary conditions
2. Assessment of risk on Hong Kong’s financial stability
3. Latest developments in the banking sector
4. Investment income of the Exchange Fund in the first quarter of 2010
27
BANKING SECTOR PERFORMANCEBANKING SECTOR PERFORMANCE
Locally incorporated AIs continued to be well capitalised
16.9%
6.0
8.0
10.0
12.0
14.0
16.0
18.0
Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09
%
28
BANKING SECTOR PERFORMANCEBANKING SECTOR PERFORMANCE
Liquidity ratio of retail banks remained well above statutory minimum of 25%
44.2%
20
25
30
35
40
45
50
55
Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10
%
29
BANKING SECTOR PERFORMANCEBANKING SECTOR PERFORMANCE
Asset quality indicators remained at comfortable levels compared with historical standards
020406080
100
Classified loan ratioCurrrent: 1.35% (Dec 2009)Peak: 10.61% (Sep 1999)
Ratio of overdue andrescheduled loans
Current: 0.88% (Dec 2009)Peak: 8.58% (Sep 1999)
Credit card charge off ratioCurrent: 2.39% (Q1 2010)Peak: 14.55% (Q3 2002)
Number of negative equityRMLs
Current: 303 (Mar 2010)Peak: 105,697 (Jun 2003)
RML delinquency ratioCurrent: 0.03% (Mar 2010)
Peak: 1.43% (Apr 2001)
Peak Latest
30
BANKING SECTOR PERFORMANCEBANKING SECTOR PERFORMANCE
Net interest margin and return on assets of retail banks
1.34%1.37%
1.0%1.1%
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0
2.1
Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10
%
0.2
0.4
0.6
0.8
1.0
1.2
1.4
NIM (LHS) ROA (RHS)
%
31
SUPERVISORY POLICY INITIATIVESSUPERVISORY POLICY INITIATIVES
• Regulatory Capital Framework:
– Basel Committee reform proposals
– Amendment of Banking (Capital) Rules
• Liquidity regime:
– Implementation of revised standards
• Supervisory guidance:
– Guideline on remuneration issued in Mar 2010
– Consultation on guidance on fair valuation practices for financial instruments
32
DEPOSIT PROTECTIONDEPOSIT PROTECTION
The amendment bill for enhancing the Deposit Protection Scheme (DPS) was introduced into LegCo in April
The enhanced DPS (including the new protection limit of $500,000) expected to be effective immediately after the expiry of the full deposit guarantee
The HKMA participated in a tripartite working group with the central banks of Malaysia and Singapore to implement a concerted exit strategy for full deposit guarantee by the end of this year by all three jurisdictions as scheduled
33
INVESTOR PROTECTIONINVESTOR PROTECTION
Mystery shopping programme to be implemented in the second half of 2010
Assisting the Government on establishing the Investor Education Council and Financial Dispute Resolution Centre
Working with SFC on implementation of proposed new measures to enhance investor protection, such as:
– investor characterisation process
– pre-sale disclosure of commissions and other commercial interests
Introducing the Pre-Investment Cooling-Off Period
34
• On 11 February, HKMA issued an elucidation of the supervisory principles and operational arrangements regarding RMB business in Hong Kong to simplify the operational procedures and increase the flexibility in developing diversified RMB-denominated financial products in Hong Kong:
– Mainland authorities and banks are responsible for verifying whether transactions undertaken by the Mainland counterparts are in compliance with the relevant rules and requirements in the Mainland, while Participating AIs in Hong Kong will process the RMB transactions in accordance with the usual banking practices in Hong Kong
– With regard to the RMB funds that have flowed into Hong Kong, Participating AIs can develop RMB businesses based on the regulatory requirements and market conditions in Hong Kong
RENMINBI BUSINESS IN HONG KONG RENMINBI BUSINESS IN HONG KONG (1)(1)
35
0
500
1,000
1,500
2,000
2,500
3,000
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
0
2,000
4,000
6,000
8,000
10,000
12,000
Amount of RMB trade settlementtransactions (lhs)No. of trade settlement accountsopened (rhs)
RMB million No of accounts
RENMINBI BUSINESS IN HONG KONG RENMINBI BUSINESS IN HONG KONG (2)(2)
RMB trade settlement gained momentum in March 2010
* The Chinese New Year fell in February in 2010, so there were fewer working days than usual in that month.
*
RMB deposits and bonds issuance in Hong Kong increasing steadily
No. of trade settlement accounts reached 11,366
0
10
20
30
40
50
60
70
80
90
100
110
120
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
0
10
20
30
40
50
60
70
80
90
100
110
120
RMB deposit RMB bonds
Outstanding Amount(RMB billion)
Outstanding Amount(RMB billion)
36
1. Macroeconomy / Monetary conditions
2. Assessment of risk on Hong Kong’s financial stability
3. Latest developments in the banking sector
4. Investment income of the Exchange Fund in the first quarter of 2010
37
INVESTMENT INCOMEINVESTMENT INCOME
2010 2009 2008 2007
(HK$ billion) Q1 * Full Year Full Year Full Year
Gain/(Loss) on Hong Kong equities^@ (3.1) 48.9 (77.9) 55.8
Gain/(Loss) on other equities^ 11.2 48.8 (73.1) 6.7
Exchange gain/(loss) (8.7) 9.8 (12.4) 18.7
Return from bonds# 11.4 (0.6) 88.4 61.0
Investment income/(loss)@ 10.8 106.9 (75.0) 142.2
* Unaudited figures
^ Including dividends# Including interest@ Excluding valuation changes in Strategic Portfolio
38
CHANGES IN INVESTMENT INCOME, PAYMENT TOCHANGES IN INVESTMENT INCOME, PAYMENT TOFISCAL RESERVES AND ACCUMULATED SURPLUSFISCAL RESERVES AND ACCUMULATED SURPLUS
2010 I 2009 I
(HK$ billion) Q1* Full year Q4 Q3 Q2 Q1
Investment income/(loss) 10.8 106.9 10.0 71.9 58.5 (33.5)
Other income 0.0 0.2 0.0 0.0 0.2 0.0
Interest and other expenses (0.9) (3.8) (1.0) (0.9) (1.2) (0.7)
Net investment income/(loss) 9.9 103.3 9.0 71.0 57.5 (34.2)
Payment to Fiscal Reserves # (8.5) (33.5) (7.9) (8.0) (8.5) (9.1)
Payment to HKSAR government funds and statutory bodies # (0.8) (1.2) (0.6) (0.3) (0.3) 0.0
Valuation change of Strategic Portfolio^ (0.6) 4.4 0.0 1.3 3.2 (0.1)
Increase/(Decrease) in EF Accumulated Surplus 0.0 73.0 0.5 64.0 51.9 (43.4)
* Unaudited figures
# The fixed rate of fee payment is 6.3% for 2010 and 6.8% for 2009
^ Including dividends