Hong Kong Unaffected By US Sub-Prime Crisis

by Mary Swire, Tax-News.com, Hong Kong

07 September 2007

Information submitted by locally incorporated banks to the Hong Kong Monetary Authority indicates that their aggregate exposure to the US sub-prime mortgage market will not have systemic implications for Hong Kong's banking sector, HKMA Chief Executive Joseph Yam says.

In his weekly Viewpoint column, published Thursday, Mr Yam explained, however, that although the US sub-prime mortgage problem may not have systemic implications for Hong Kong's banking sector, banks and other market participants should watch for risks and uncertainties.

"Thanks in part to comparatively slower development of the credit derivatives market in Hong Kong, the risk arising from exposure to securities and credit derivatives with a sub-prime component is closely monitored by banks in Hong Kong," he stated.

"While some in the market are hoping for more government intervention in the form of interest-rate cuts or government-sponsored entities buying more mortgage-backed securities to keep the market going, others are projecting that the US mortgage credit quality will weaken further in the second half of 2007 or even well into 2008 as more sub-prime adjustable-rate mortgages reset to higher floating rates."

He said the outcome of the US sub-prime mortgage problem and its effect on the global economy was still unpredictable, and cautioned market participants to watch developments closely.

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