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Following is the speech by the Financial Secretary, Mr John C Tsang, at the Hong Kong Association of Banks Distinguished Speaker Luncheon today (September 24):
Gary, distinguished guests, ladies and gentlemen,
Good afternoon.
It is my great pleasure to be with you today. Given recent developments here, the financial tsunami, bad milk and the number eight typhoon, I was expecting a grumpy reception, but I am glad to see that there are still so many smiling faces in the audience. I guess our banks have weathered the recent storm reasonably well, and we are now, in the usual Hong Kong manner, looking for new opportunities in the market.
I wish to thank the Hong Kong Association of Banks for organising this event. It is indeed a timely opportunity, and I must congratulate you, Gary, on the scheduling of this occasion, for me to share with you my views on the global financial turbulence and our vision for the development of Hong Kong's financial markets.
They say a week is a long time in politics, but last week must have seemed like eternity for the financial world. But if you had missed the world which in modern speak means being away from your computer, say, for a week diving somewhere in Palau or hiking somewhere in the Himalayas, you would have noticed little difference between the closing price of the Hang Seng on the previous Friday at 19,352 and this past Friday at 19,327, and would wonder had anything happened. Indeed, the world has moved on, there has been a seismic shift in the international financial landscape, and much has changed fundamentally. What has not changed is the volatility in the securities market which is continuing with its roller-coaster ride.
Following Lehman Brothers' bankruptcy, the Bank of America's takeover of Merrill Lynch and the AIG crisis, investors all over the world are increasingly concerned about the negative economic implications of the financial meltdown that is taking place in the US on the global economy.
Despite the aggressive and unconventional policy measures adopted by the US Federal Reserve Board and other central banks in the major centres, the global credit crisis remains a serious issue.
In this part of the world, though Asia's economies are not as dependent on the US market for growth as they traditionally were, exports to the US, Europe and Japan remain a key driving force in the region's rapid development. Any global slowdown will definitely dim the outlook for Asia.
Hong Kong is an open economy and we are not immune to adverse regional or global economic developments. The Government, together with the Hong Kong Monetary Authority, the Securities and Futures Commission, the Insurance Authority, the Stock Exchange and others, will take all necessary measures to ensure that our financial market remains stable, and our economy can steer a smooth course amid global financial turmoil.
I empathise with the small investors who have suffered losses as a result of Lehman Brothers' bankruptcy. The Hong Kong Monetary Authority and the Securities and Futures Commission have been meeting with the investors and offering them assistance, while keeping in close touch with the trustees and distributor banks concerned.
The Monetary Authority and the Securities and Futures Commission have assured me that they will deal with investors' enquiries and complaints expeditiously. They will provide me, in about three months' time, their observations, lessons learned and issues identified during the process of investigating into the complaints received.
Upon receipt of their reports, I shall ask the Secretary for Financial Services and the Treasury to undertake a systemic review and to consider, on a policy level, what can be done to further improve our regulatory framework and enhance investor protection and education.
In the case of AIG and its two subsidiaries operating insurance business in Hong Kong, the Insurance Authority has exercised its statutory powers swiftly to safeguard their assets by requiring them to seek prior approval on all transactions involving transfer of assets or funds to other related entities within the same group. We will continue to keep a close watching brief on their operations.
Similarly, the Securities and Futures Commission has also promptly issued restriction notices on four entities of Lehman Brothers to protect the assets of clients and the interest of investors.
The Hong Kong Monetary Authority has injected HK$1.5 billion, $1.556 billion to be more precise, into our banking system in an effort to boost liquidity.
Our strong fundamentals, sound regulatory framework and prudent risk management by financial institutions provide staunch support to Hong Kong in riding out the storm. Worthy of special mention is our banking sector, the strong financial and liquidity positions of which as a whole have provided a substantial cushion against the crisis.
Local banks remained profitable in the first six months of 2008. Their aggregate direct and indirect exposures to subprime mortgage and related products are immaterial relative to their total assets. Nevertheless, a slowdown in overall profitability growth is noted, which is attributable to additional impairment charges and provision for losses.
Ladies and gentleman, you know, as well as I do, how we can entrench our position as a pre-eminent global financial centre. From the Government's point of view, we will continue to join hands with our financial regulators to keep enhancing the competitiveness of Hong Kong amid the global financial turbulence.
We have a good record in this area. In 2006, we exempted offshore funds from profits tax, which helped to put Hong Kong's tax treatment of offshore funds on a par with other international financial centres, such as New York and London. We also abolished estate duty in the same year to further sharpen the competitive edge of Hong Kong as a major asset management centre.
We will continue to capitalise on our unique advantage of having the Mainland as our hinterland while, at the same time, we will maintain an international outlook and strengthen our status as Asia's world city. We will continue to tap new business opportunities in emerging markets, upgrade our market infrastructure and ensure that our regulatory regime aligns well with the fast-evolving global trend.
For instance, a comprehensive rewrite of the Companies Ordinance is currently under way. The aim is to develop a set of modernised company legislation. A review of the Trustee Ordinance will be conducted to increase the competitiveness of our trust services industry. We are also working to put in place an Islamic financial platform to tap new market opportunities, develop our commodities market and encourage issuers from around the world to arrange listings in Hong Kong through depository receipts.
As we grasp new opportunities, we will not lose sight of the importance of advancing financial stability. Hong Kong is famous for its transparent, effective and robust financial regulatory framework, but we cannot afford to stand still.
We are reviewing our regulatory framework on an ongoing basis, with special emphasis on maintaining flexibility and responsiveness in prioritisation of issues, co-ordination of risk assessments and co-operation in policy development between the Administration and financial regulators.
Implementing Basel II - an international capital adequacy standard -is another good example. Hong Kong is one of the first centres in the world to implement Basel II. We are closely following up the progress of the Basel Committee on Banking Supervision on reviewing various aspects of Basel II. And we stand ready to adjust our current framework, when and where necessary.
In addition, the Hong Kong Monetary Authority last year reviewed its work on banking stability with a view to further strengthening the HKMA's efforts in promoting the general stability and effective working of the banking system. The review concluded that there are no fundamental deficiencies in the regulatory and supervisory framework or process under the HKMA. It also made a series of recommendations on how the HKMA can best discharge its duties. The Authority will formulate an action plan after views from the concerned parties have been collated and analysed during the consultation period.
Even with our clear vision and dedicated efforts, maintaining financial stability is no easy task, especially under the irresistible trend of globalisation and financial sophistication. We are aware that the ripples of the current crisis may have yet to play out fully. We will remain alert to global developments and maintain our financial stability and institutional resilience.
Ladies and gentlemen, financial services are a cornerstone of our economy, and banking is a core element of our status as a global financial centre. We will take all necessary measures to ensure stability in the financial sector during these difficult times.
Once again, I thank the Hong Kong Association of Banks for inviting me to speak today. The Association provides a vital platform for effective and transparent communication between the industry and Government.
With the motto "leveraging new opportunities, advancing financial stability" as well as our determination, our agility and savvy in realising this motto, I am confident that Hong Kong will continue to meet new challenges while strengthening even further our role in the global financial market.
Thank you.
Ends/Wednesday, September 24, 2008
Issued at HKT 14:32
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