Banking system to come under review
Updated: 2007-11-09 06:49
The government will give a thorough review of Hong Kong's banking system in order to forestall a subprime mortgage crisis and ensure a sustainable growth, chief executive of Hong Kong Monetary Authority Joseph Yam said yesterday.
Expressing his concern over the credit crunch that originated from the United States at a Legislative Council (LegCo) meeting, Yam said Hong Kong's economy has been on an upswing for the past four years, but "unfavorable factors may also lurk at good times".
Therefore, he called on investors to remain alert despite a booming market.
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A man looks at an electronic screen displaying the Hang Seng Index in Hong Kong yesterday. Blue chips closed down 3.2 percent after a big drop on Wall Street overnight amid concerns over credit market woes, high oil prices and a weaker US dollar. AFP |
The latest round of jittery was triggered by US banks such as Citigroup, which posted disappointing earnings as a result of big losses in subprime lending.
Hong Kong shares plummeted 3.19 percent yesterday to 28,760.221, following a 2.64 percent slide of the Wall Street on Wednesday.
Yam reaffirmed Hong Kong's commitment to a currency peg to the US dollar, but said there was always room to enhance the link.
Currency peg
He dismissed speculation that Hong Kong could link its currency to a basket of currencies and said monetary policy would not be affected by his expected departure from the central bank in 2009.
Hong Kong's 24-year-old currency link to the US dollar was under pressure recently as the local unit hit the top of its permitted trading range.
"Of course, there's always room for enhancement (of the exchange rate link) but that does not mean a fundamental change," Yam said, declining to say how the peg could be enhanced.
"Switching to a basket of currencies would be a fundamental change."
Hong Kong dollar now trades within a band against the US dollar between 7.75 and 7.85.
The government would not change the investment portfolio of the Foreign Exchange Fund just because that US dollar is temporarily weak, Yam said.
The fund is managed by the government as a backup of the currency peg and 88 percent of its investments are in US dollar-dominated assets.
"It is unlikely that the global financial environment would be changed structurally just because of the depreciation of the dollar," he said.
Reuters contributed to the story
(HK Edition 11/09/2007 page6)
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