Hong Kong Monetary Authority Chief Executive Joseph Yam (left) and Financial Secretary John Tsang unveil five temporary measures to provide liquidity assistance to local banks. China Daily

In the wake of the ongoing global credit crisis, Hong Kong Monetary Authority (HKMA) yesterday unveiled five temporary measures to provide more liquidity to the local banks for six months.

Speaking about the new measures, HKMA Chief Executive Joseph Yam said as the international credit worry has tightened the banks' liquidity and some banks can hardly obtain liquid assets, HKMA will implement temporary measures to provide liquidity assistance to the local banks.

The five measures will take effect tomorrow and the government may consider extending the duration if necessary.

Under the measures, HKMA will accept US dollar assets as eligible securities for banks to receive liquidity assistance through the discount window.

HKMA will also extend the duration of liquidity assistance to banks through the discount window from overnight money only to maturities of up to three months.

Meanwhile, the authority will increase the 50-percent threshold for the use of exchange fund paper as collateral for borrowing through the discount window to 100 percent.

HKMA will respond to individual banks' request and conduct foreign exchange swaps, for example, between the US and Hong Kong dollars, of various durations.

Lastly, the authority will, upon request from individual banks, lend term money of up to one month to them against collaterals.

Financial Secretary John Tsang said the measures will help reinforce the local banking framework during the time of instability in the global financial market.

"The government hopes to take precautions before the financial storm comes," Tsang said, adding that he expected the turbulence will take a toll on the entire financial system in the territory.

Yam said the interbank system holds HK$10 billion in asset, however, because of the credit concern of some banks, they are not willing to lend money in short-term.

"That is why we need to get involved to recycle the liquidity," Yam said, adding that HKMA will accept a wide range of collaterals other than the collateralized debt obligations (CDOs).

Hong Kong interbank rates jumped yesterday after the US Congress rejected the $700-billion bailout plan. The overnight banking rate once soared to as high as 3.61 percent and the one-month rate also surged to its day's high of 4.32 percent.

Meanwhile, some academics and local banks also welcomed the temporary measures from HKMA.

Standard Chartered Bank Economist Kelvin Lau said the measures reflect the current problem facing Hong Kong banks.

"The measures are specifically designed to help banks with asset need," Lau said.

Daniel Chan, senior investment strategist at DBS Bank (Hong Kong), said there is an urgent need to carry out the measures, as the financial market now is quite strained.

"Assets of local banks are tight, especially after the massive withdrawal incident in Bank of East Asia," Chan said.

Billy Mak, associate professor from department of finance and decision sciences at Baptist University, said the measures can ease the liquidity problem especially threatening the small- and medium-sized banks.

"The measures are quite similar to those in the US and the SAR government can refer to their experience to help expand the banks' assets and liquidity," Mak said.

(HK Edition 10/01/2008 page2)