ENG-2002 — Page 128

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FINANCIAL AND MONETARY AFFAIRS

The average maturity profile of all outstanding fixed-rate debt at year-end increased slightly compared with the previous year.

To improve secondary market liquidity of Exchange Fund paper, the HKMA commenced the reopening of 5-year Exchange Fund Notes for rolling over 3-year notes, from the fourth quarter. To enhance market transparency, the HKMA began to publish at its website, from November, the monthly statistics on turnover and outstanding amount of Exchange Fund paper and non-Exchange Fund paper lodged with the CMU, categorised by remaining maturity and fixed/floating rate issue. In addition, the HKMA launched an official Exchange Fund Bills and Notes (EFBN) fixings scheme in December to enhance the credibility of the Hong Kong dollar benchmark yield curve. The EFBN fixings are posted on major news wires as well as at the HKMA's website.

The HKEX reduced the listing fees for debt securities from July to encourage bond listings. As part of the effort to streamline the regulations and procedures in issuing and listing debt securities, the Government will implement a three-phase approach in 2003. The first phase will include allowing awareness advertisements to be issued prior and subsequent to the registration of a prospectus, streamlining the disclosure. requirements imposed on debt security issuers under the Companies Ordinance, and providing for programme offerings by permitting a 'dual prospectus' structure. In the second phase, amendments to the Companies Ordinance will be made to anchor these new practices in legislation. In the third phase, the SFC will conduct a comprehensive review of the existing laws and procedures against international standards, with a view to facilitating the issuance and listing of securities.

Development of a Secondary Mortgage Market

A well-developed secondary mortgage market plays a useful role in channelling long- term funds, such as insurance and pension funds, to meet the rising demand for long- term home financing. The Hong Kong Mortgage Corporation (HKMC), wholly owned by the Government through the Exchange Fund, was incorporated in March 1997 with a mission to develop this market.

The HKMC's business is being developed in two phases. The initial phase involves the purchase of mortgage loans for its own portfolio and the funding of the purchases largely through the issuance of unsecured debt securities. In the second phase, the HKMC securitises the mortgages into Mortgage Backed Securities (MBS) and offers them for sale to investors.

Since its commencement of business in October 1997, the HKMC has proceeded smoothly with its Mortgage Purchase Programme. Through effective marketing and the introduction of innovative products, the outstanding principal balance of the HKMC's retained mortgage portfolio reached $28.3 billion as at year-end.

The HKMC introduced the Mortgage Insurance Programme (MIP) in March 1999 to promote home ownership in Hong Kong. It enables the banks to lend home mortgage loans above the 70 per cent loan-to-value ceiling set by the HKMA without incurring additional risk. In 2000, the MIP was expanded to cover mortgage loans with a loan-to-value ratio from 85 per cent to 90 per cent. In 2001, the MIP was expanded to cover equitable mortgage loans on residential properties under construction with loan-to-value ratio of up to 90 per cent. The loan size ceiling for mortgage loans on residential properties under construction with a loan-to-value ratio of up to 85 per cent was increased from $5 million to $8 million in November.