30 June 2000

The Chief Executive
All locally incorporated authorized institutions

Dear Sir/Madam,

Recommendations on Interim Financial Disclosure
by Authorized Institutions Incorporated in Hong Kong

The HKMA issued in May a consultative paper on "Recommendations on Interim Financial Disclosure by Authorized Institutions Incorporated in Hong Kong" ("Interim Disclosure Package"). Having consulted the two industry Associations, the Working Party on Financial Disclosure and the Joint Technical Working Group on Financial Disclosure, the HKMA has now finalized the Interim Disclosure Package for locally incorporated institutions which is attached to this letter.

The Interim Disclosure Package this year aims to eliminate inconsistencies, where appropriate, with those recommendations for disclosure by overseas incorporated authorized institutions. The Interim Disclosure Package is also updated in line with the Statements of Standard Accounting Practice ("SSAP") issued by the Hong Kong Society of Accountants. The changes include: -

1. Institutions should disclose balance sheet information under Part II of the Interim Disclosure Package. There have been concerns about whether the issuance of a balance sheet with accompanying comparative year-end figures (whether in condensed format or not) without the accompanying full set of accounts and auditor's report may contravene section 129C(3) of the Companies Ordinance. The Listing Rules issued by the Stock Exchange of Hong Kong and SSAP 25 "Interim financial reporting" do not indicate that
   there is a concern in this respect. Your attention is drawn to paragraph 40.1 of Appendix 16 of the Listing Rules where legal opinions of leading counsel in London and Hong Kong have already been sought on this matter which suggests that interim financial accounts are outside section 129C of the Companies Ordinance. Subsequently we have received clarification from leading counsel that this conclusion is not affected by the inclusion in such accounts of comparative year-end figures. The publication of an interim report with comparatives does not constitute the publication of a copy of a balance sheet for the previous financial year.
   
   

2. Institutions should disclose credit risk weighted amounts and replacement costs of contingent liabilities and commitments, exchange rate contracts, interest rate contracts and other derivatives; and
   
   

3. Institutions should also disclose the average liquidity ratio for the financial period.

Comments received from the industry indicated there are practical problem in complying with the proposed 2-month time period for publication of the press notice containing the Interim Financial Disclosure Statement and the requirement to lodge it with the HKMA 7 days prior to publication. In view of these comments, the HKMA has agreed to retain the status quo i.e. the time period for publication should remain 3 months and there is no deadline for the lodging of the press notice containing the Interim Financial Information Disclosure Statement with the HKMA (though obviously it would be helpful to have this as early as possible).

The scope of application and the manner and timing of disclosures are now included in Appendix A to the recommendations. The relevant authorized institutions should adopt the recommendations in this Interim Disclosure Package in respect of their Interim Financial Information Disclosure Statements for financial periods ending on or after 30 June 2000.

The finalized package can also be accessed through the HKMA's private website for authorized institutions (www.hkfin.net). If you have any questions, please feel free to contact Mr. Kim Chong at 2878 1848 or Ms. Tess Leung at 2878 8279.

Yours faithfully,

D T R Carse
Deputy Chief Executive

Encl