ECON. 310 Financial Institution In H.K. Section 1 Topic: Hong Kong As An International Financial Centre

Content Introduction Hong Kong and Singapore’s banking system Hong Kong and Singapore’s stock market Hong Kong and Singapore’s bond market Conclusion and Recommendations

Commercial Banks in Singapore Deposit taking Provision of cheque and lending

Commercial Banks in Singapore (Dec 05) Foreign Banks (105) Local Full Banks (5) Foreign Full Banks (24) Wholesale Banks (34) Offshore Banks (47)

Full Banks Six of the banks operating in Singapore have been awarded Qualifying Full Banks (QFB) privileges 25 locations Share ATMs among their sub-branches freely

Qualifying Full Banks (QFB) Credit card holder obtain cash advances through ATM network Provide debit service through their network Offer Supplementary Retirement Scheme, CPF Investment Scheme accounts

Wholesale Banks Accept fixed deposit in Singapore dollar (shall not be less than S$250000) Current accounts in Singapore dollar (shall not be interest-bearing )

Offshore Banks Residents of Singapore Accepted current accounts in Singapore dollars (shall not be interest-bearing and exceed S$500million) Non-resident of Singapore Accepted fixed deposits in Singapore dollars (shall not be less than S$250,000, including interest)

Banking system in HK Three-tier system of deposit-taking institutions 71 of the world’s top 100 banks

Three-tier banking system in HK 131 Licensed banks 36 Restricted license banks 35 Deposit-taking companies

Licensed bank It operate current and savings accounts only accept deposits of any size and maturity from the public pay or collect cheques drawn by or paid in by customers.

Restricted license bank mainly engaged in merchant banking and capital market activities. Accept deposits of any maturity of HK$500,000 and above.

Deposit-taking company mostly owned by, or otherwise associated with, banks. consumer finance and securities business deposits of HK$100,000 or above with an original term of maturity of at least three months.

Local representative offices overseas banks may establish local representative offices not allowed to engage in any banking business mainly to liaison work between the bank and its customers

Singapore Stock Market Singapore Exchange Limited (SGX) Main market in Asia following HK and Tokyo Independently open to the public

Singapore Exchange Limited (SGX) Asia-Pacific's first demutualised and integrated securities and derivatives exchange in 1st,Dec,2000 Stock Exchange of Singapore (SES) +the Singapore International Monetary Exchange (SIMEX)=SGX Functions: A comprehensive and efficient infrastructure for raising capital, and for investors to transact and clear financial products.

Singapore Stock Market 660 listed companies (includes domestic and foreign) Includes SGX Mainboard and SGX SESDAQ. Strait Times Index (STI):45 components

Strait Times Index (STI)

Singapore Stock Market 2003 2004 2005 No. of companies 546 589 660 No. of companies in 2005 domestic No. of companies Mainboard 48.94% SESDAQ 19.85% foreign No. of companies Mainboard 25.5% SESDAQ 6.06% + =100% Source:http://info.sgx.com

Singapore stock Market Year 2004 2005 %change in total capitalisation + 19.58% -6.98% Source: http://info.sgx.com

Stock Market in Hong Kong

Hong Kong Stock Market Fourth largest in the world Most important in Asia Market Total capital raised --- US$36 billion The world's most active and liquid securities markets Play a key role in funding China's state-owned enterprises

Statistics of HK Stock Market Up to the end of November 2005 Main Board Number of Listed Companies Total market capitalisation(HK$Mil.) Total turnover in value (HK$Mil.) 922 $7,959,098 $394,202 Growth Enterprise Market Total Market Capitalization (HK$Mil) 202 $72,428 Source: Hong Kong Exchanges and Clearing

Main function of HK Market Raising capital for the Chinese Mainland 304 Mainland companies were listed in Hong Kong Total market capitalization amounting to HK$ 2.0 trillion (US$ 256 billion) 30% of Hong Kong's total market capitalization. 1993-2004 raised HK$895 billion (US$ 115 billion)

Bond market in Singapore

History of the bond market Singapore Government budget surpluses Bond market small and undeveloped Corporations borrowing from banks

Asian Crisis (1997) Importance of deep Overdependence and efficient capital markets Overdependence on bank finance Well-diversified financial system risk management more efficient manner of allocating resources and capital

Singapore bond markets Asian dollar bond market (ADB) Singapore government securities market (SGS) Singapore dollar corporate bond market (SDCB)

Asian dollar bond market (ADB) was initiated in the early 1970s issue in December 1971 for international bonds denominated in the US dollar, the Japanese Yen, or other hard currencies corporations, financial institutions, national governments and their agencies, and international organizations

Singapore government securities market (SGS) Major measures MAS would begin to issue more Singapore government securities with longer maturities, and encourage statutory boards and government-linked corporations to increase their security issuance MAS would grant tax exemptions for fee income earned by financial institutions operating in debt securities in Singapore Interest income earned by financial institutions and corporations from holding debt securities would be subject to a concessionary 5% tax rate

Singapore dollar corporate bond market (SDCB) transformed since 1998 two strategies encouraged the statutory boards and government-linked corporations (GLCs) to tap the bond market opened up the Singapore dollar bond market to foreign issuers; if funds were raised for use in Singapore, issues by non-bank nonresidents no longer required MAS approval restrictions on the credit rating of issuers and the minimum size requirement were abolished

Govt Securities Maturity Profile-LCY: SG

Benchmark Yield Curve - LCY Bonds : SG

Trading Volume - SG

Size of LCY Bond Market in USD : SG

Share of FCY Bonds to Total Bonds Outstanding : SG

Hong Kong’s Bond Market Three type of bonds Government bond Corporate bonds Supranational Bonds

Government Bonds Exchange Fund Bills Exchange Fund Notes (91-, 182- and 364-day) Exchange Fund Notes (2-,3-,5-,7-10-year)

Trading Volume

Trading Volume-SG

Benchmark Yield Curve - LCY Bonds

Benchmark Yield Curve - LCY Bonds-SG

Government Security Maturity Profile-LCY

Corporate Bonds In September 1977, by Chase Manhattan Bank The issue size was HK$100 million A five-year issue with a coupon rate of prime an interest rate 5.25%

Corporate Bonds From 1995 to 2005, the corporate bonds are rapid increase Increases from 18.8 billions USD to 63.8 billions USD.

Size of LCY Bond Market in USD

Size of LCY Bond Market in USD-SG

Supranational Bonds Played an important role in the development of the Hong Kong bond market The first supranational issue was launched in 1989 by the World Bank

Share of FCY Bonds to Totals Bonds Outstanding

Conclusion & Recommendations For the Hong Kong Banking System HKMA has launched several measures e.g. Removal of the Interest Rate Rules To consolidate Hong Kong IFC status Opening the Renminbi service Consummate between the inland and Hong Kong the Renminbi fund circulation pipeline

For Hong Kong Bond Market Actively develop HK government bond Develop RMB bond market

For Hong Kong Stock Market Lower the restriction for the company switching from the Growth Enterprise Market to the Main Board Be co-operative, no competitive

MC Questions

Question 1 Which of the followings is not the one of the banking system in HK? A. Licensed bank B. Full bank C. Restricted license bank D. Deposit-taking company

Question 2 How many listed companies in the Main Board until November 2005? A. 900 B. 912 C. 922 D. 932

Question 3 Which of the following is NOT the issued bond in Hong Kong? A. Government bond B. Corporate bonds C. Asian dollar bond D. Supranational Bonds

Group Members Wong Ka Tat, Keith 023081 Kwok Wai Yi, Elle 023091 Chan Hui Chi, Tracy 023092 Tse Ching Ching, Michelle 023099 Wong Ka Lee, Carrie 023105 Lam Ching Man, Joey 023107 Chan Kin Chung, Kenneth 023109