FINANCIAL AND MONETARY AFFAIRS
76
loans to wholesale and retail trade, all other major categories of loans recorded slower growth rates in 1990 than in 1989. Loans for use outside Hong Kong increased sub- stantially by 74.7 per cent during 1990, following a growth of 32.5 per cent in 1989. Contributing to this increase was the strong growth in Euro-yen loans booked in Hong Kong. During the year, loans to some other economies in the region, such as Thailand, probably also experienced some increases. The growth in loans to China, on the other hand, appeared to have slackened. Taken as a whole, total loans and advances extended by authorised institutions increased by 40.6 per cent during 1990, compared with a growth rate of 32.2 per cent during 1989.
In part reflecting the higher local interest rates (relative to US dollar interest rates) during most of the first seven months of 1990, the growth in Hong Kong dollar deposits (adjusted to include swap deposits) picked up considerably from the second quarter. Although deposit growth became more sluggish during the fourth quarter, the annual increase, at 15.4 per cent was still higher than the growth rate of nominal gross domestic product. Foreign currency deposits rose by 27.7 per cent in 1990, after an increase of 22.4 per cent in 1989. Of these, US dollar and non-US dollar foreign currency deposits grew by 12.6 per cent and 41.1 per cent respectively during 1990. A considerable proportion of the increase in foreign currency deposits was believed to be attributable to offshore deposits, given the role of Hong Kong as an international financial centre. Taken together, total customer deposits (in all currencies) grew by 22.2 per cent during 1990, higher than the - growth rate of 19.2 per cent during 1989. The relative share of Hong Kong dollar deposits to total deposits stood at 42.2 per cent at end-1990, compared with 44.7 per cent at end-1989.
The rising trend in the Hong Kong dollar loan to deposit ratio observed in the last two years continued into the early part of 1990. This phenomenon reflected a diversification in the sources of funds for the rapid increase in Hong Kong dollar loans. One such source was the increased Hong Kong dollar liabilities to overseas banks. With a marked deceleration in credit expansion during the year and with the picking up in Hong Kong dollar deposits between May and August, the Hong Kong dollar loan to deposit ratio fell from a peak of 121.8 per cent at end-April to 111.8 per cent at end-August before edging up again to 116.7 per cent at end-year. At end-1989, the ratio was 116.5 per cent.
Turning to the financial markets, the local capital market was invigorated with the launch of the Exchange Fund bills programme in March. The three-month bills issued during the year were oversubscribed by 1.33 to 5.71 times. To further develop the market, six-month bills began to be issued in late October. Trading of the bills in the secondary market has picked up significantly since June, helped by the quoting of two-way prices by market makers. Moreover, as market makers are allowed to go short for individual issues of the bills (provided that the overall position is not short), there has been active trading of bills of different maturities to reflect market expectations of interest rate movements. From June to December, the average daily turnover in the bills (including the three-month and six-month bills) was around $1.9 billion.
A total of 82 new issues of negotiable certificates of deposit were launched during 1990. The total funds raised amounted to around $50.4 billion, which was significantly higher than the $10 billion raised in 1989. The issue of a handful of large-sized foreign- currency-denominated negotiable certificates of deposit by non-resident banks accounted for part of this increase. In respect of the new issues of Hong Kong dollar-denominated