ENG-2009 — Page 123

Financial and Monetary Affairs 75

Development of a Secondary Mortgage Market

A well-developed secondary mortgage market is useful in channelling long-term funds, such as insurance and pension funds, to meet demand for long-term home financing. The Hong Kong Mortgage Corporation (HKMC) was set up in March 1997 to carry out the following tasks:

• Enhance the banking sector's stability by offering a reliable source of liquidity, thereby reducing the banks' concentration of risk exposure to mortgages and associated liquidity risks;

• Promote wider home ownership; and

• Facilitate the growth and development of the debt securities and mortgage- backed securities markets in Hong Kong.

Asset Purchase Programme

Under the Asset Purchase Programme, the HKMC purchases assets from financial institutions to facilitate their risk and balance sheet management. The HKMC's local asset portfolio had an outstanding principal balance of $28.3 billion at the end of 2009.

Mortgage Insurance Programme

The Mortgage Insurance Programme (MIP) was launched in 1999 to provide mortgage insurance cover to banks enabling them to extend residential mortgage loans to homebuyers above the 70 per cent loan-to-value ceiling set by the HKMA.

The MIP has gained wide acceptance and has promoted home ownership through product diversification and improvements to servicing standards. Over 37 000 applications for mortgage loans amounting to $89 billion were approved in 2009.

Debt Issuance

The HKMC plays an important role in promoting the Hong Kong dollar debt market's development. By the end of 2009, it had $44.5 billion of debt securities outstanding with a tenure of up to 15 years. The HKMC pioneered the development of Hong Kong's retail bond market in 2001, with a total issuance of HK$13.7 billion, of which $1.9 billion was outstanding at the end of 2009.

Mortgage-backed Securities Market

The HKMC has a back-to-back mortgage-backed securities (MBS) programme that provides a platform for banks to repackage effectively their mortgage portfolios into more liquid MBS. A total of $1.9 billion of MBS were outstanding under this programme at year-end.

Upgrading of the Quality of Financial Reporting

The Government continues to press ahead with the enhancement of market quality and investor protection in collaboration with stakeholders, including the Financial Reporting Council (FRC), a statutory body established to investigate Hong Kong listed companies' audit irregularities and non-compliance with accounting