Hong Kong Monetary Authority (HKMA) has recently made an arrangement with the People's Bank of China (PBOC) to allow Hong Kong banks on the mainland to approach the PBOC or the HKMA for liquidity support, in a bid to help Hong Kong companies operating on the mainland. Bloomberg

The Hong Kong Monetary Authority (HKMA) on Friday said that Hong Kong banks operating on the mainland can apply to the People's Bank of China (PBOC), as well as the HKMA, for extra liquidity.

Under the arrangement, the mainland branches or subsidiaries of Hong Kong banks can borrow collateralized liquidity from the PBOC, while the collateral involved will be kept by the HKMA or PBOC.

"This arrangement can help Hong Kong corporations operating on the mainland continue to obtain financing from Hong Kong banks on the mainland in the face of a worsening credit environment," HKMA chief Joseph Yam said.

The HKMA has also been exploring with other mainland banks to implement the arrangement, to establish a standing monetary swap system between the two bodies in the long run.

Hong Kong companies on the mainland have been suffering a liquidity crunch recently amid the global financial crisis. Yam said the authority has been "doing all it can" to maintain a favorable operating environment for the local banks.

The HKMA announced two new measures to help local banks continue providing credit.

The HKMA will adopt a flexible approach toward the relevant premium on capital adequacy ratio of individual banks, so that there will be more room for them to conduct lending business, Yam said.

At present, the territory's de facto central bank requires locally incorporated banks to maintain a minimum capital adequacy ratio of at least 8 percent, Yam said, while local banks have been keeping theirs at around 14 percent.

"But I have to emphasize that this is a temporary measure. Banks should always prudently manage their credit risk," he added.

"We have a 100-percent guarantee for all savings deposits in local banks, we also assure the local banking system has adequate asset, and it can provide capital for the banks in need," Yam stressed.

He hopes local banks must try to support financial intermediation to solve the credit problem that the small- and medium-sized enterprises (SMEs) are facing.

Chairman of the Hong Kong Associate of Banks, He Guangbei, welcomes the HKMA's flexible approach on the banks' capital adequacy ratio.

The measure can encourage banks to provide more loans and also facilitate financing to the SMEs, He said after the association's regular meeting on Friday.

However, it still depends on individual strategies from different banks to offer loans to the enterprises, he added.

(HK Edition 11/22/2008 page2)