Financial system remains steady despite 'shocks' of coronavirus, protests, says Hong Kong Monetary Authority, even as currency takes a tumble

By Yujing Liu yujing.liu@scmp.com / https://www.scmp.com/business/banking-finance/article/3064624/financial-system-remains-steady-despite-shocks-coronavirus?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp | March 4, 2020 5:52 PM SGT
Hong Kong's currency has slipped from a recent three-year high as the deadly coronavirus outbreak unfolded, but the city's de facto central bank insists the financial system remains stable despite the epidemic's heavy toll on the economy.
The Hong Kong dollar has weakened by 0.3 per cent to 7.783 per US dollar since February 5, when it reached 7.763 " its strongest level since March 2017.
The local currency moved from the strong end towards the centre of its narrow trading band of 7.75 to 7.85 per US dollar, as a lack of large initial public offerings amid the Covid-19 outbreak led to a higher interbank liquidity level " banks were left with an unusually high amount of short-term capital to lend one another.
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But the city's financial system remains stable even though the coronavirus outbreak has caused heavy damage to some industries, the head of the city's de facto central bank said on Monday.
"Over the past year, our economy has been under a lot of pressure as a result of the US-China trade war, local social unrest and the coronavirus outbreak," said Eddie Yue Wai-man, chief executive of the Hong Kong Monetary Authority's (HKMA), during a meeting with the Legislative Council.
No sign of capital outflow has been observed, according to Yue, as Hong Kong's total deposits grew 2.9 per cent in 2019 from the year before and remained steady in the first two months of this year.
The epidemic has killed two people and infected 98 in Hong Kong since it erupted in January from central China's Hubei province. Globally, the death toll stood at 3,048 on Monday, with most of the cases located in mainland China.
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The public health crisis has led to a slowdown in IPO deals in Hong Kong, as travel restrictions impeded due diligence work and roadshows. The securities regulators have also stepped up scrutiny of companies' business prospect as a result of the crisis.
"Oversubscription of a well-received IPO tends to drain interbank liquidity and amplify" a surge in the closely-connected Hong Kong dollar interest rate and currency exchange rate, Stephen Chiu, foreign exchange and rates strategist at Bloomberg Intelligence, wrote in a recent report.
The HKMA is discussing with banks the details of financial relief measures recently announced by the government to help small companies during the crisis, including a full government guarantee for loans of up to HK$2 million for each small and medium-sized enterprise affected by the epidemic.
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It also plans to review regularly a newly announced fixed-rate mortgage loans pilot scheme, and potentially adjust the interest rate of the programme based on market conditions, according to Yue.
The scheme, introduced by financial secretary Paul Chan Mo-po last week, allows residents to take out a mortgage at a fixed rate. The annual interest rate for a 10-year mortgage is 2.75 per cent, higher than the current rate of 2.5 per cent.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.
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