*********************************************************
Following is the speech by the Financial Secretary, Mr John C Tsang, at the Hong Kong Institute of Bankers Annual Banking Conference 2012, Hong Kong Convention and Exhibition Centre today (September 13):
Thank you Patrick (Fung), distinguished guests, ladies and gentlemen,
It is indeed my great pleasure to join you all this morning.
I am delighted to congratulate the Hong Kong Institute of Bankers on organising this Annual Banking Conference. Now in its fourth year, this conference has, indeed, become an important annual event for the banking industry. I am pleased that the conference programme covers many of the key areas for Hong Kong's enduring success as an international financial centre.
This is indeed a year of transformation. I am not only referring to financial transformation, but also political changes.
Hong Kong's new administration is just a couple of months into its term. We have also elected a new set of Legislative Council members just over this past weekend.
Over in the US, Presidential elections on November 6 are shaping up to be a hotly contested affair between the sharply divided Democrats and Republicans. In the meantime, the US economic recovery continues at a snail's pace.
And in Europe, the eurozone debt crisis ebbs and flows amid economic and political flux as well as financial instability in major economies such as Spain and Italy. The latest EU bailout of Spanish banks appears to have provided nothing more than temporary respite.
We are also waiting to see how the unprecedented bond-buying programme, announced last week by "Super Mario" of the European Central Bank, and see how that will play out.
All told, the state of play in the international financial markets changes on a daily, if not hourly, basis.
Here in Asia, the economic and financial situation is more stable, although we cannot afford to take our eye off the ball - not for a day, not for an hour.
There appears to be no early end in sight to the economic difficulties in Europe or the US, two of our most important trading partners.
While financial markets experience wild gyrations as sentiment switches between "risk on" and "risk off", the risks are real, not imaginary.
We can take some comfort from Hong Kong's domestic sector, which has remained fairly resilient. This has helped cushion the overall performance of our economy. In the second quarter this year, our GDP grew by 1.1 per cent in real terms year on year.
The clear message is that we must continue to be prudent in properly managing or mitigating risks.
Fortunately for us, Hong Kong's robust financial regulatory regime has helped our markets emerge from the recent financial tsunami clear of any significant systemic problems. The lingering difficulties in the eurozone and the US have also underlined the importance of sound banking practices and corporate governance in all banks.
Financial institutions operating here have limited direct exposure to Europe. Locally incorporated authorised institutions are well-capitalised with a capital adequacy rate of 15.9 per cent, well above the international minimum requirement of eight per cent.
Although we are on fairly firm ground in Hong Kong, we cannot afford to be complacent. We recall how quickly and deeply previous contagion has spread. It was exactly five years ago that British bank Northern Rock received a bailout from the UK government. And four years ago that US investment bank Lehman Brothers filed for bankruptcy protection. And both of these events shook the international financial system to its core.
It is important to ensure that our regulatory framework is able to cope with any new or unforeseen challenges in a timely manner. With this in mind, the Government is working with our financial regulators to keep abreast of financial developments globally. Together, we have introduced appropriate initiatives to keep up with the latest international standards and trends.
The new Basel III Accord will take effect from January next year. This will strengthen the resilience of the international banking sector through more stringent capital requirements. We are also engaging banks and other financial institutions on the regulatory reforms in various areas. These include over-the-counter derivatives, central clearing, exchange and electronic platform trading, reporting to trade repositories, and capital requirements.
In addition, we must be mindful of the risks of excessive credit growth and the danger of asset bubbles forming in the current ultra-low interest rate environment. The Hong Kong Monetary Authority has introduced a series of countercyclical supervisory measures to further strengthen banks' liquidity and credit risk management. Banks are also required to maintain a high degree of vigilance in their underwriting standards. We are watching the situation very closely and if conditions so warrant, we will not hesitate to add to these measures to safeguard the integrity of our banking system.
In Hong Kong, the Anti-Money Laundering and Counter-Terrorist Financing Ordinance came into operation in April. This law is very important to Hong Kong as a member of the inter-governmental Financial Action Task Force. We must join other international financial jurisdictions to uphold a robust regime on this front.
No doubt, in an already highly competitive industry, these new regulations and obligations will be an additional challenge for our banks to cope with. However, these measures are important for us to move on from the global financial crisis and create a more stable environment for our financial markets.
Our goal is not to overburden the banking sector, but to maintain a level playing field for the industry that rewards responsible banking and avoids the pitfalls of the recent past.
Tighter regulation is only part of the new financial era. Another part is embracing the new opportunities that are emerging.
For us, Hong Kong's strategic positioning as China's offshore global financial hub is one such opportunity.
It is clear, not just here in Asia, but around the world, that liberalisation of the Mainland currency, the Renminbi, is an irreversible trend. I encourage our banks to take full advantage of these unprecedented opportunities from our city's position as the leading offshore centre for Renminbi-denominated business. I have no doubt you are doing exactly that already.
Hong Kong hosts the largest pool of Renminbi liquidity outside the Mainland. At the end of July this year, outstanding Renminbi customer deposits and certificates of deposit in Hong Kong amounted to almost 700 billion Renminbi.
This provides the foundation on which to build up our status as a global centre for offshore Renminbi trade settlement, financing and asset management.
Since last month, banks in Hong Kong are offering a full range of Renminbi services to personal customers who are not Hong Kong residents. I hope this will provide a boost to your private wealth management business.
The "dim-sum" bond market is also doing well. Renminbi bond issuance in Hong Kong amounted to 108 billion Renminbi in 2011, more than three times of the amount in 2010. In the first seven months of 2012, Renminbi bonds with a total value of 79 billion Renminbi were issued, some 50 per cent more than the same period last year. This includes the Central Government's latest 23 billion Renminbi sovereign bond issue in Hong Kong in June this year.
There has also been a significant expansion in the range of dim-sum bond issuers, coming from different sectors and from all corners of the world, such as manufacturers in Europe, telecommunications companies in South America and financial institutions in Sweden.
The first Renminbi-denominated REIT was listed on our stock exchange in April last year. This was the first Renminbi-denominated equity product to be listed and traded outside the Mainland. It represents a significant milestone in Hong Kong's development as the leading offshore Renminbi centre. This momentum of product diversification continues at a pace. The first Renminbi-denominated gold ETF and A-share ETF were listed on Hong Kong's stock exchange in February and July this year respectively.
The Central Government's support is fundamental. In June the Central Government announced a series of measures to deepen and broaden offshore Renminbi business in Hong Kong. We must harness the opportunities to develop the offshore Renminbi lending market and further enrich the variety of offshore Renminbi products.
Another area of great potential is Renminbi trade settlement. Following the launch of the scheme three years ago, this is handled by banks in Hong Kong and has grown remarkably from 370 billion Renminbi in 2010 to 1.9 trillion Renminbi in 2011. In the first seven months of this year, the volume was 1.4 trillion Renminbi, which is 51 per cent more than the same period last year.
Around 200 banks are currently participating in Hong Kong's Renminbi clearing platform, including over 170 branches and subsidiaries of foreign banks and Mainland banks operating overseas. Offshore Renminbi business brings out all the best competitive advantages of Hong Kong. We already have a highly developed financial sector with links to financial hubs in different corners of the globe. We have free flows of capital and information, a robust regulatory regime, the rule of law and a system that meets the highest standards of international best practice.
At the same time, we have also made great progress in dovetailing the financial systems of Hong Kong and the Mainland in a spirit of mutual trust and mutual benefit. We are on the same wavelength in terms of goals for offshore Renminbi business. All this helps meet a great demand for wealth management and banking services in the Mainland and overseas.
With much of Europe and the US in financial doldrums in the past few years, institutional investors have given greater weight to Asia as the main platform for their investments. Funds sourced from non-Hong Kong investors account for more than 60 per cent of the total fund management business in Hong Kong.
In July, the Government modified licensing requirements under the Banking Ordinance to enable a broader range of financial institutions, including private banking specialists, to establish operations in Hong Kong. The Hong Kong Monetary Authority has also clarified its regulatory stance in terms of who should qualify as "private banking customers", and how they should be served.
Ladies and gentlemen, Hong Kong is home to some of Asia's oldest and best respected banks. The Hong Kong Institute of Bankers itself marks its 50th Anniversary next year.
All this banking experience and professionalism is the driving force behind Hong Kong's emergence as a truly international financial centre.
We should move through this year of transformation with one eye on the uncertainties around us and another on the opportunities ahead. That way, we shall be well-placed to lead the way into a new, more stable and more prosperous era.
Thank you very much.
Ends/Thursday, September 13, 2012
Issued at HKT 17:07
NNNN
Windows Media format
Flash format