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Mortgage Corporation
The Financial Secretary announced, as part of Government's endeavours to promote the financial services sector, that we were conducting a study into the establishment of a mortgage corporation in Hong Kong. I am very pleased to note that public response, including comments made by Members in last week's debate, has been favourable. I am very grateful for Members' very encouraging support and I am similarly grateful to some people who have, mostly through the media, expressed certain reservations, cautioning the Administration to heed certain potential risks and to examine critically how the corporation should be set up to serve Hong Kong's particular needs.
I can assure Members here that we are ever mindful that, like any type of financial intermediaries, the mortgage corporation will not be a completely risk-free endeavour. We have been advised that the corporation will be exposed to four main types of risks, namely credit risk (i,e. default by the mortgagors), interest rate risk (i.e. mismatch between the different interest rates on the asset and liability sides), prepayment risk (i.e. mortgagors repaying the loan in full or in part before maturity) and operational risk (i.e. risk arising from the internal operation of the corporation). So far, our consultation with market practitioners and experts both in Hong Kong and overseas suggests that these risks can be properly managed.
Some concerns have been expressed about problems associated with US mortgage corporations, savings and loans and the Japanese Jusen mortgage corporations. Let me clarify. The US mortgage corporations did experience some credit and interest rate risks in the early 1980s, but with improved risk management techniques, they are now very profitable and robust institutions.
The proposed mortgage corporation will utilise the US experience to manage its risks professionally. As a wholesale institution, it will not function like the US savings and loan institutions which originate retail residential mortgages in competition with the banking system. Neither will the proposed mortgage corporation behave like a Japanese Jusen, because the Jusen mortgage corporations lent money directly to finance commercial real estate. May I repeat, as a wholesale financial intermediary, the proposed mortgage corporation is designed to spread the concentration and liquidity risks of the banking system more evenly in the financial sector. It will not compete with the banks, nor will it lend directly to finance commercial property.
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