Following is a speech by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, at the CFA Charter Award Ceremony and Forecast Dinner 2004 of the Hong Kong Society of Financial Analysts today (November 27) (English only):
Distinguished guests, ladies and gentlemen,
Thank you very much for inviting me to this CFA Charter Award Ceremony and Forecast Dinner. I feel very much at home with all of you because I spent five years of my 31-year career as an equity analyst in Canada. One of my regrets in life is that I did not sit for the CFA examination. So, I really envy those of you who are CFAs.
I note that it is the first time that the Hong Kong Society of Financial Analysts organises this type of event, which has been very popular in many cities around the world where the CFA Institute has local chapters. It is indeed a very good idea to introduce the event to Hong Kong, which has a population that loves making forecasts.
I am invited to report on the state of health of our financial market. Here I am pleased to share with the audience my assessment of the state of health of our financial market which, in a nutshell, is good.
The International Monetary Fund (IMF) has conducted a Financial Sector Assessment Programme review of HKSAR's financial system in 2002 and concluded that the Hong Kong SAR financial system was robust and fundamentally sound. In particular, the IMF considered the financial system of Hong Kong resilient, sound and overseen by a comprehensive supervisory framework. The financial system has shown strong resilience both in the face of external shocks and during the cyclical downturn. The financial markets are well developed, liquid and efficient. The supervisory system is well developed by international standards, which is characterised by transparent regulations, a strong reliance on the rule of the law and free and competitive markets. The IMF also noted HKSAR's strong adherence to international financial sector standards and codes. The recent IMF Staff Mission to Hong Kong notes that Hong Kong has made substantial progress in the enhancement of regulatory and supervisory arrangements, improved transparency of institutional and policy framework, and further advances in corporate governance.
Hong Kong is well-known for its sound and resilient banking system, in particular its robust supervisory framework. The latest statistics show that the average consolidated capital adequacy ratio was 15.9% at end-June 2004, which is well above the minimum international standard of 8%. Asset quality has improved with the upturn in the economy, including the recovery in property prices. The percentage of classified loans and overdue and rescheduled loans continued to decline in the second quarter of 2004. The average liquidity ratio of retail banks stood at 43.2%, far exceeding the minimum requirement of 25%. The number of residential mortgage loans in negative equity declined to some 25,400 at end-September 2004, down by 75% since mid-2003. But even when this was at the peak level of 106,000 cases last year, our banks continued to run smoothly without any systemic problems. This well illustrates the strong fundamentals of our banking system. Another promising recent development is that the mortgage delinquency ratio fell to a 5-year low of 0.47% at the end of September 2004 from the peak of 1.4% at end-April 2001.
Overall, the state of health of our banking system is excellent, and we will continue to strive to achieve the highest possible standard in collaboration with the banking industry. For instance, we are committed to implementing the new capital adequacy standards in line with BASEL II by 2006. This will certainly provide an even more solid basis for our banks to continue to grow and achieve better performance.
Turning to the securities market, another important sector in our financial system. I can tell you with confidence that our securities market is among the healthiest around the world. We have a robust, transparent and effective regulatory regime. Our regulators, the Securities and Futures Commission (SFC) and the Hong Kong Exchanges and Clearing Limited (HKEx) adhere to the international standards in vetting listing applications and subsequent monitoring of listed companies. The requirements adopted for such important areas as financial reporting and other aspects of corporate disclosure, directors as well as shareholders' approval for certain connected transactions are on a par with international practices. Our regulators also spare no efforts in maintaining a sound system for regulating financial intermediaries and making appropriate changes in the light of international developments in order to reinforce our position as an international financial centre. The Government and the concerned authorities would also not lose sight of the importance of catering for the needs of market development. Continuous efforts are being made to update our rules and regulations to facilitate the introduction of new products.
Building on the foundation of this solid regulatory regime and with the concerted efforts of the Government, the regulators and the industry, our stock exchange has successfully established itself as one of the top exchanges in the world. It has overtaken London to become the second-largest fund raiser worldwide in the first nine months of 2004. As at mid-November 2004, 1,085 companies were listed on HKEx with a market capitalisation of some HK$6,300 billion, which represented a growth of about 50% compared to the end of June 1997. Our Stock Exchange of Hong Kong brokers are in good shape and the majority have been making profits in the period from July 2003 to June 2004.
Over the past decade or so, we have also emerged as the premier capital formation centre for Mainland enterprises. In the past 11 years since Beijing allowed Mainland-incorporated firms to raise equity in Hong Kong, over 280 Mainland companies listed in Hong Kong have raised over HK$860 billion.
As regards the fund management business, we have over the years established a solid foundation and developed a large pool of talent with rich expert knowledge, experience and international exposure. Hong Kong is now one of the most prominent asset management centres in Asia. In 2003, the total assets in the fund management business amounted to $2,947 billion, of which $1,860 billion were sourced from overseas investors, representing 63% of the total assets. In the asset management business, the percentage of assets managed in Hong Kong had steadily grown from 42% of the assets under management in 2000 to 53% in 2003. In value terms, $1,194 billion worth of the assets was managed onshore.
The Government is also working closely with the industry to further strengthen our position as an international asset management centre. We are formulating legislative amendments to provide exemption for offshore funds from profits tax. We are also keen to foster communication and cooperation between the financial services sector in Hong Kong and the Mainland and to promote among concerned stakeholders in the Mainland our strengths in serving as their platform for global investment. I have just led a 120-strong delegation to Beijing to attend an experience-sharing forum organised by my bureau and attended by over 100 representatives from the Mainland insurance industry.
With our good foundation and in the light of the latest encouraging developments, I think our fund management industry is not just healthy, but also has rich potential for growth.
On the insurance side, all authorised insurers, both local and overseas, are under the prudential supervision of the Insurance Authority. Hong Kong is a founding member of the International Association of Insurance Supervisors (IAIS), and our regulatory framework follows essentially the core principles prescribed by IAIS. In addition to being financially sound, the insurance industry in Hong Kong has also been sustaining an enviable double-digit growth every year throughout the past decade. In 2003, the gross premium income reached HK$102 billion, which is equivalent to about 8% of our GDP. With over 180 insurance companies from 22 different countries, Hong Kong is now recognised as a premier international insurance centre with the highest concentration of insurers in the Asia-Pacific region.
Of course, there is no room for complacency and we must always be on the alert. The Government will work closely with the regulators and market participants to ensure that our financial market has all the necessary ingredients and vitamins for maintaining good health. I am optimistic that Hong Kong will be able to maintain and further strengthen its position as an international financial centre and the premier capital formation centre for the Mainland.
Nevertheless, we must also keep a close watch on the bigger environment within which our financial market grows. We would not want the health of our financial market to be jeopardised by any of the prevailing and emerging diseases around us. You would no doubt take into account the various challenges facing us, including worries about hard landing of the Mainland economy, high oil prices, increase in interest rates, US trade and budget deficits, speculations on renminbi and geo-political situation in the region as well as globalisation in arriving at your forecast about the future of the financial market in Hong Kong.
To conclude, although our financial market may have sneezes and colds from time to time, its health is in good shape in overall terms. With the report I have just provided, I am eager to listen to your intelligent forecasts.
Once again, thank you for inviting me to this stimulating and interesting event. I wish you all an enjoyable evening. Thank you.
Ends/Saturday, November 27, 2004