ENG-1993 — Page 100

FINANCIAL AND MONETARY AFFAIRS

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During the year, deposit rates administered by the Hong Kong Association of Banks remained unchanged. At the year's end, the savings deposit rate was 1.5 per cent while the three-month and 12-month deposit rates were 2.75 per cent and 3.75 per cent, respectively. The best lending rate stood at 6.5 per cent.

Hong Kong dollar deposits grew by 25.5 per cent during 1993, higher than the growth rate of 13.2 per cent in 1992. This was also higher than the growth in gross domestic product in money terms, at around 15 per cent. The acceleration in the growth of Hong Kong dollar deposits, particularly during the fourth quarter, was due to the inflow of funds. Foreign currency deposits increased by 5.5 per cent in 1993, compared to the 6.3 per cent increase recorded in 1992. Taken together, total customer deposits (in all currencies) increased by 14.6 per cent in 1993, compared with 9.3 per cent in 1992. The relative share of Hong Kong dollar deposits to total deposits rose to 49.8 per cent at the year's end, from 45.5 per cent a year earlier.

Hong Kong dollar M1, M2 and M3 rose by 20.8 per cent, 26.9 per cent and 25.2 per cent, respectively, in 1993. The corresponding increases for total M1, M2 and M3 were 20.6 per cent, 16 per cent and 15.6 per cent, respectively. (For details, see Appendix 14.)

Hong Kong dollar loans recorded a growth of 17.9 per cent in 1993, while foreign currency loans increased by 14.6 per cent. Analysed by major categories, loans for use in Hong Kong (including those for trade financing) increased by 17.7 per cent. Growth in _residential mortgage loans increased from 13.6 per cent in 1992 to 19.5 per cent in 1993. Following a moderate growth of 2.3 per cent in the first quarter, the growth rate accelerated to 6.1 per cent and 7.7 per cent in the second and third quarters, respectively, as trading in the residential property market, in particular the luxury flats sector, revived, alongside a more bullish sentiment. In response to this, banks tightened their lending policy by reducing the maximum loan-to-valuation ratio of luxury flats from 70 per cent to 60 per cent in July. The growth in residential mortgage loans slowed in the fourth quarter to 2.2 per cent. Loans for trade financing recorded a significant increase of 15.7 per cent during 1993, largely reflecting the pick-up in trade activities. Loans to other major sectors, including wholesale and retail trades, building, construction, property development and investment, transport, manufacturing and financial concerns, all recorded some increases during the year.

Turning to the financial markets, the expansion in the government borrowing pro- gramme facilitated the further development of the local capital markets. The two-year Government Bond programme was being replaced by the two-year Exchange Fund Note programme, starting from May. The Exchange Fund bills and notes continued to receive favourable market response, with tenders invariably several times over-subscribed. At the end of the year, the yields for the bills were around 35 to 45 basis points below the corresponding Hong Kong interbank offered rate, while the yields for the three-year Exchange Fund notes were around 20 basis points above the corresponding US Treasury bonds. Daily turnover of the bills and bonds, taken together, in the secondary market averaged $15.3 billion, or 48 per cent of the total amount of bills, notes and bonds outstanding, at $31.7 billion, at the year's end.

New issue activity in respect of other debt instruments remained relatively moderate as equity funds were raised through the buoyant stock market. A total of 125 new issues of negotiable certificates of deposit were launched during 1993, of which 87 were denominated in Hong Kong dollars. Of these 87 issues, 57 were arranged on fixed-rate terms and the