dfgdfg sdfdsfg Page 2 HKMA at a Glance The Hong Kong Monetary Authority (HKMA) is the government authority in Hong Kong responsible for maintaining monetary and banking stability. The HKMA’s policy objectives are: ♦ to maintain currency stability within the framework of the Linked Exchange Rate System; ♦ to promote the stability and integrity of the financial system, including the banking system; ♦ to help maintain Hong Kong’s status as an international financial centre, including the maintenance and development of Hong Kong’s financial infrastructure; and ♦ to manage the Exchange Fund. The HKMA is an integral part of the Hong Kong Special Administrative Region Government but operates with a high degree of autonomy, complemented by a high degree of accountability and transparency. The HKMA is accountable to the people of Hong Kong through the Financial Secretary and through the laws passed by the Legislative Council that set out the Monetary Authority’s powers and responsibilities. In his control of the Exchange Fund, the Financial Secretary is advised by the Exchange Fund Advisory Committee. The HKMA’s offices are at 55/F, Two International Finance Centre 8 Finance Street, Central, Hong Kong Telephone : (852) 2878 8196 Fax : (852) 2878 8197 E-mail : [email protected] The HKMA Information Centre is located at 55/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong and is open from 10:00 a.m. to 6:00 p.m. Monday to Friday and 10:00 a.m. to 1:00 p.m. on Saturday (except public holidays). The Centre consists of an exhibition area and a library containing materials on Hong Kong’s monetary, banking and financial affairs and central banking topics. The HKMA’s bilingual website (www.hkma.gov.hk ) provides comprehensive information about the HKMA including its main publications and many other materials. Page 1 Contents 2 Chief Executive’s Statement 8 Highlights of 2020 12 Calendar of Events 2020 20 About the HKMA 22 Corporate Governance 27 Advisory Committees 40 Chief Executive’s Committee 44 HKMA Organisation Chart 46 Economic and Financial Environment 58 Monetary Stability 70 Banking Stability 110 International Financial Centre 136 Reserves Management 144 Corporate Functions 162 Corporate Social Responsibility 181 The Exchange Fund 290 Annex and Tables 313 Abbreviations used in this Report 314 Reference Resources The chapter on Banking Stability in this Annual Report is the report on the working of the Banking Ordinance and the activities of the office of the Monetary Authority during 2020 submitted by the Monetary Authority to the Financial Secretary in accordance with section 9 of the Banking Ordinance. The full text of this Report is available on the HKMA website. Page 2 2 ANNUAL REPORT 2020 Chief Executive’s Statement The year 2020 in many ways defied our wildest imaginations. Amid these uncertainties, the HKMA will continue to safeguard monetary and financial stability to provide an COVID-19 swept the globe at a rate that very few would have environment conducive to economic recovery. At the same anticipated, bringing economic activities around the world to time, the HKMA will strive to capture opportunities to further a near standstill. In Hong Kong, after having experienced a strengthen Hong Kong’s competitiveness as a global financial contraction in 2019, the economy suffered a further blow hub in the evolving banking and financial landscape. from COVID-19 and contracted further for the second consecutive year, registering the most severe contraction in Monetary and financial stability: GDP on record. The unemployment rate surged to a 16-year resilience unshaken high, with some sectors hit particularly hard. In 2020, the Linked Exchange Rate System (LERS) continued to operate in a smooth and orderly manner. Since its It is often during trying times when one’s strengths become inception in 1983, the LERS has weathered difficult times and apparent. Despite these significant headwinds, Hong Kong’s has continued to demonstrate its resilience and robustness monetary and banking systems once again stood the test. against shocks. Throughout 2020, the Hong Kong dollar This resilience did not happen fortuitously. Rather, it is a exchange rate remained stable despite COVID-19 and the result of prudent policies applied over the years. volatile macro environment. The strong-side Convertibility Undertaking was triggered a total of 85 times, leading to The recovery path ahead will not be plain sailing. Although aggregate inflows of around HK$383.5 billion into the Hong central banks and governments worldwide have gone to Kong dollar. great lengths to support the economy, the outlook remains clouded with uncertainties, ranging from the monetary policy stance of central banks globally, through to the progress of vaccination programmes as well as the potential effects of a prolonged low interest rate environment. Meanwhile, the pendulum of geopolitical tensions continues to swing, further clouding the horizon. Page 3 HONG KONG MONETARY AUTHORITY 3 Chief Executive’s Statement Underpinning the robustness of the LERS is the solid Mindful of the cash flow problems that may be faced by small foundation that has been built up over the years. As the and medium-sized enterprises (SMEs), the HKMA together International Monetary Fund summed up in its External Sector with the Banking Sector SME Lending Coordination Report 2020, the credibility of the LERS is assured by the Mechanism which we set up in 2019, launched several rounds transparent set of rules, ample fiscal and foreign reserves, of relief measures including the Pre-approved Principal strong financial regulation and supervision, a flexible Payment Holiday Scheme (PPPHS) which deferred all loan economy, and a prudent fiscal framework. The HKMA was principal payments of eligible corporates by six months. By also quick to dispel rumours and provide timely updates on the end of 2020, over 58,000 cases for payment holiday and facts and figures through active industry engagement, and other relief measures totalling over HK$740 billion had been effective public communication through both conventional granted by banks. The PPPHS was extended as appropriate and social media. Concurrently, the HKMA continued to in view of the lingering pandemic situation, and was further enhance its surveillance capacity by leveraging the latest extended in March 2021 to end-October 2021. The Hong technology and data analytics, so as to stay agile in the light Kong Mortgage Corporation Limited also introduced the of the latest market conditions and emerging risks. Special 100% Loan Guarantee under the SME Financing Guarantee Scheme to alleviate the burden of paying While the COVID-19 pandemic weighed heavily on the employee wages and rents by SMEs. More than 25,000 economy, the banking sector remained resilient with robust applications involving some HK$40 billion had been approved capital and liquidity positions. As at end-2020, the capital by the end of 2020. In the first quarter of 2021, the scheme adequacy ratio of local banks was 20.7%, well above the was enhanced and the application period was extended to international minimum requirement of 8%. The average 31 December 2021. During 2020, banks also approved more liquidity coverage ratio of large banks was also well above the than 28,000 cases totalling over HK$44 billion relating to the statutory minimum requirement of 100%, reaching 155.1% in provision of cash flow support for individual customers. It is the fourth quarter of 2020. Reflecting the impact of the encouraging to see how the banking sector came together to COVID-19 pandemic, the asset quality of banks has help tide both corporates and individual borrowers over in deteriorated modestly, with the classified loan ratio increasing these difficult times. to 0.9% as at the end of 2020, but this level remains comparatively healthy, well below the long-run average of In the meantime, we have kept advancing our work with the 1.8% since 2000. banking industry to enhance the sector’s inclusiveness and customer-centric culture. We devoted further efforts to Banking sector: lifeblood of the economy encouraging banks to pay special attention to customers in The banking sector plays an essential financial intermediation need. Good progress was achieved in the sharing of good role in the economy and society. During the year, while practices in providing banking services to persons with maintaining its focus on the supervision of the credit and intellectual impairment and in the provision of more barrier- liquidity risk management of banks, the HKMA also monitored free and accessible banking services. closely the impact of the COVID-19 pandemic on banking operations and has taken a number of measures to ensure that the banking sector can continue to provide essential services, as well as extend credit to borrowers to support the economy. In March, the HKMA reduced the Countercyclical Capital Buffer by 100 basis points to 1%, and reduced the regulatory reserve requirement in April. These measures helped release about HK$1 trillion of lending capacity in the banking sector. Page 4 4 ANNUAL REPORT 2020 Chief Executive’s Statement Given the rapidly changing banking landscape as a result of Growing and greening Hong Kong’s financial evolving technologies, the HKMA’s work extends beyond industry for a more sustainable future tackling the current challenges to expanding the talent pool The first area is promoting green and sustainable finance, to support the future growth and stable development of the where steady progress continued to be made under the banking industry. We cooperated with the Hong Kong HKMA’s three-phase approach announced in May 2019. Association of Banks and the Hong Kong Institute of Bankers In 2020, we completed the assessment of the “greenness in carrying out the “Capacity Building for Future Banking” baseline” for 47 banks, and published a white paper and exercise with an aim to identify the potential talent gaps in circular to provide guidance and share experiences on banks’ the industry and develop a clear road map for banks to management of climate risks.