XN000022-1990-05-31 — Page 6

THURSDAY, MAY 31, 1990

THE

"OVER THE PERIOD 1985-89, THE U.S. DOLLAR, AND THEREFORE HONG KONG DOLLAR, TENDED TO DEPRECIATE AGAINST OTHER MAJOR CURRENCIES.

"DEPOSITS IN THESE CURRENCIES, WHEN TRANSLATED INTO HONG KONG DOLLARS FOR THE PURPOSE OF VALUATION, THEREFORE TENDED TO GROW MORE RAPIDLY THAN THEIR RATE OF INCREASE WHEN MEASURED IN THE FOREIGN CURRENCIES CONCERNED, HE SAID.

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INVESTORS IN HONG KONG WHO HAD BEEN ALIVE то EXCHANGE FLUCTUATIONS SHIFTED PART OF THEIR FINANCIAL ASSETS INTO FOREIGN CURFENCY DEPOSITS IN THE HOPE OF EXCHANGE GAINS WAS ANOTHER REASON, HE SAID.

**

"SOME INVESTORS, TOO, HAVE BEEN ATTRACTED BY THE HIGHER INTEREST YIELDS AVAILABLE ON CERTAIN FOREIGN CURRENCY DEPOSITS, HE NOTED.

"UNTIL MID-1988, EVEN U.S. DOLLAR DEPOSITS, WHERE BECAUSE OF THE LINKED EXCHANGE RATE SYSTEM THERE IS NO EXCHANGE RATE RISK, OFFERED CONSISTENTLY HIGHER INTEREST RATES THAN THE CORRESPONDING HONG KONG DOLLAR DEPOSITS," MR NENDICK SAID.

PROBABLY THE MOST IMPORTANT REASON OF ALL WAS THAT HONG KONG'S CONTINUING DEVELOPMENT AS AN INTERNATIONAL FINANCIAL CENTRE HAD RESULTED IN A GROWTH IN OFFSHORE BUSINESS CONDUCTED THROUGH HONG KONG, HE ADDED.

TURNING TO ANOTHER TREND IN THE MONETARY AGGREGATES WHICH HAD ATTRACTED RECENT ATTENTION THE INCREASE IN THE RATIO OF HONG KONG DOLLAR LOANS TO DEPOSITS, MR NENDICK SAID THE INCREASE WAS THE RESULT OF A RAPID GROWTH IN HONG KONG DOLLAR LOANS IN 1988 AND 1989.

"THIS IN TURN MUST BE LARGELY A REFLECTION OF THE SUBSTANTIAL REDUCTION IN THE AMOUNT OF NEW EQUITY RAISED SINCE THE STOCK MARKET CRASH IN OCTOBER 1987 AND THE SLOWDOWN IN CAPITAL MARKET ISSUES SINCE 1986," HE SAID.

"SLOWER GROWTH IN THE LOCAL ECONOMY WILL ALSO HAVE HAD ITS EFFECT, IN THAT FIRMS WILL HAVE BEEN LESS ABLE TO RELY ON RETAINED PROFITS TO MEET THEIR FINANCING REQUIREMENTS AND HAVE NEEDED TO HAVE MORE RESORT TO BANK LOANS, HE EXPLAINED.

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PARTLY IN RESPONSE TO THESE TRENDS, HONG KONG DOLLAR INTEREST RATES WERE INCREASED IN MARCH AND APRIL THIS YEAR, MR NE DICK NOTED.

THE HONG KONG ASSOCIATION OF BANKS HOPED THAT THIS WOULD HAVE THE EFFECT OF BOTH ENCOURAGING MORE RAPID GROWTH IN HONG KONG DOLLAR DEPOSITS AND DETERRING BORROWERS FROM TAKING LOANS FROM NON-ESSENTIAL PURPOSES, HE POINTED OUT.

REVIEWING THE LATEST DEVELOPMENT IN THE EXCHANGE

TENDERS SO FAR HAD

MR

NENDICK SAID RESPONSES

SATISFACTORY.

AT

FUND BILL, BEEN

VERY

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