Speech at Panel on Financial Affairs

Briefing on the work of Hong Kong Monetary Authority

Macroeconomic environment and Hong Kong’s credit ratings

Mr CHAN Chun-ying noted with concern Moody’s recent downgrade of the credit ratings of the Mainland (from Aa3 to A1) and Hong Kong (from Aa1 to Aa2), and sought HKMA’s views on the impacts on Hong Kong’s financial stability. The Chairman disagreed with Moody’s rationale for its decision (i.e. Hong Kong’s close economic tie with the Mainland) and was concerned that other major credit rating agencies might follow Moody’s action. He enquired about measures HKMA would take to mitigate the possible adverse impacts, and sought its assessment of the downgrading on the participation of Hong Kong’s financial services sector in the Belt and Road Initiative (“BRI”) and the Guangdong-Hong Kong-Macao Big Bay Area development.

CE/HKMA said that Moody’s had mechanically downgraded Hong Kong’s credit rating following its downgrading of Mainland’s credit rating and HKMA did not agree with Moody’s decision. He pointed out that the Mainland economy had stabilized and shown signs of improvement since the second half of 2016, while in Hong Kong, credit quality remained healthy with the classified loan ratio of retail banks declining slightly in the first quarter of 2017. On the impact of the downgrading on Hong Kong, CE/HKMA said that in general, it would increase the cost of bond issuers. However, he did not envisage that it would have a significant impact as Hong Kong maintained a strong fiscal position and did not need to finance its expenditures by issuing government bonds. The objective of the government bond programme was to promote the development of the local bond market, and the issuance size was relatively small. As regards private enterprises which issued bonds in Hong Kong, they were mainly corporates with high credit ratings and well-known to investors. The slight downgrade in Hong Kong’s credit rating should not have significant impact on their bond issuance cost. CE/HKMA said that although Moody’s had downgraded Hong Kong’s credit rating, Hong Kong still maintained very high international credit ratings as assigned by other credit rating agencies (e.g. AAA by Standard and Poor’s). Going forward, as long as Hong Kong maintained sound economic fundamentals and robust financial regulatory regime, there was a chance that Moody’s would eventually restore Hong Kong’s credit rating.


Banking and market stability

Mr CHAN Chun-ying enquired whether HKMA had studied the reasons for the increase in the proportion of “loans for other private purposes” to Hong Kong’s gross domestic product since 2005.

DCE(B)/HKMA responded that while HKMA did not collect detailed information about “loans for other private purposes” on a regular basis, relevant information was obtained from banks about a year ago on an ad hoc basis. According to the data provided by banks at that time, the growth of such loans was mainly driven by banks’ private banking businesses. Around two-thirds of such growth were related to personal loans with collateral (such as investment products) while the remaining one-third was loans without collateral (like tax loans). HKMA would consider whether to collect more updated information from banks to better assess the latest situation.

Provision of banking services

Mr CHAN Chun-ying also welcomed HKMA’s work in promoting financial inclusion. He sought information on the progress of the proposal allowing senior citizens to withdraw cash at designated outlets without the need for making purchase (“the cash withdrawal proposal”).

CE/HKMA responded that financial inclusion referred to enabling the general public to have reasonable access to basic banking services. The global trend was towards digitalization, and banking transactions could be conducted through mobile phone or the internet without necessarily involving physical branches. The automatic teller machines were well developed nowadays. These, coupled with the newly launched video teller machines, could help address the issue of insufficient branch network in some remote areas and hence promote financial inclusion. As regards the cash withdrawal proposal, DCE(B)/HKMA advised that the Hong Kong Association of Banks was gauging the views of relevant stakeholders. The proposal could be implemented if there was positive feedback from merchants as he did not see any regulatory hurdles in this regard. HKMA would continue to closely communicate with the banking industry on the cash withdrawal proposal. Difficulties in opening bank accounts

Coin Collection Programme

Mr CHAN Chun-ying noted that HKMA currently deployed two coin carts in the Coin Collection Programme (“CCP”), and enquired whether it would co-operate with local start-ups (e.g. Heycoins) to enhance the collection of coins.

CE/HKMA said that HKMA currently deployed two coin carts which served members of the public in the 18 districts of Hong Kong on a rotational basis, and was different from others (e.g. Heycoins) that installed coin collection machines in shopping malls. HKMA welcomed innovation and new technology, as they could complement the two coin carts in collecting coins from the public to enhance coin circulation. HKMA would maintain close dialogue with the industry and study the cost effectiveness of new technology.


Developments after implementation of the four-pronged approach for tackling money lending-related malpractices

Further measures to protect borrowers

While expressing support for the Administration’s new regulatory measures to tackle malpractices by intermediaries, Mr CHAN Chun-ying noted that some intermediaries had suggested that the Administration should consider introducing a licensing regime for intermediaries so as to restore public confidence in law-abiding intermediaries. He sought the Administration’s view on the suggestion.

DS(FS) responded that in the past, concerns had been expressed by some money lenders that the reputation of the industry was adversely affected by the malpractices of unscrupulous intermediaries. He stressed that the new regulatory measures aimed at tackling such malpractices and protecting borrowers’ interests. He said that since it was not mandatory to arrange a loan through an intermediary, there was not a clear case or a practical need to introduce a licensing regime for intermediaries. The proposal of establishing a licensing regime for intermediaries would also entail complex issues, e.g. how to define an “intermediary”. The priority of the Government at the moment was to monitor the implementation of the new regulatory measures. The Government would review the effectiveness of the new measures, and monitor whether the unscrupulous intermediaries had developed new tactics. The Government would commence a review in the third quarter of 2017 with a view to identifying changes in the modus operandi of unscrupulous intermediates after taking into account operational data and relevant information for the first six months of implementation of the new measures, and would aim to come up with initial findings and observations by around end-2017 or early 2018 to facilitate further consideration of whether any new measures would be necessary.