1. Briefing to the Legislative Council Panel on Financial Affairs 11 January 2001 HONG KONG MONETARY AUTHORITY

2. DISCUSSION TOPICS Currency Banking Financial Infrastructure Exchange Fund HKMA Accountability

3. 1999 2000 CURRENCY - Exchange Rate HK - US interest rate differential (1 month) (RHS) Exchange rate (LHS) 1998

4. CURRENCY - Vulnerabilities US economic outlook Volatility of major currencies Financial reform in Asia Argentina International financial architecture

5. CURRENCY - Vulnerabilities US economic outlook Volatility of major currencies Financial reform in Asia Argentina International financial architecture

6. CURRENCY - Banknotes New security features to be applied to BoC and SCB $1,000 banknote Longer term review.

7. BANKING - System Robust 199819992000 Growth of operating profit- 32.9%+15.2%+45.7% before tax (yoy % change) (Q1-Q3) Growth of bad debt +335.1%+0.2%- 54.8% charge (yoy % change) (Q1-Q3) Classified loans as % of 7.33%9.81% 7.72% total loans (peaked at (Sep 00) 10.33% in Sep 99) Capital Adequacy Ratio18.5%18.7%18.7% (Sep 00) Liquidity Ratio45.7%44.5%50.2% (Sep 00)

8. BANKING - Reform Measures Depositor Protection Commercial Credit Reference Agency Interest Rate Deregulation Consolidation Code of Banking Practice Consumer Issues (?)

9. BANKING - Reform Measures Depositor Protection Commercial Credit Reference Agency Interest Rate Deregulation Consolidation Code of Banking Practice Consumer Issues (?)

10. BANKING - Draft Legislation Banking (Amendment) Bill No.1 Banking (Amendment) Bill No.1  Companion to Securities and Futures Bill Banking (Amendment) Bill No. 2 Banking (Amendment) Bill No. 2  Approval of Managers - still in consultation with banking industry

11. FINANCIAL INFRASTRUCTURE Money Payments  HKD system well established  USD system introduced Debt Clearing  internationalisation Equity Clearing  exploring domestic linkages Retail Payments  internal review

12. FINANCIAL INFRASTRUCTURE Money Payments  HKD system well established  USD system introduced Debt Clearing  internationalisation Equity Clearing  exploring domestic linkages Retail Payments  internal review

13. EXCHANGE FUND - Balance Sheet end 2000 1999 2000Change (HK$ bn) (HK$ bn) (%) Assets 1,002.81,020.81.8 Deposits119.072.8(38.8) Debt Securities601.0730.121.5 Hong Kong Equities215.3150.7(30) Other Equities44.140.4(8.4) Other Assets 23.426.814.5 Liabilities 1,002.81,020.81.8 Monetary Base234.4215.4(8.1) Fiscal Reserves392.2417.16.3 Other Liabilities85.381.2(4.8) Accumulated Surplus290.9307.15.6

14. EXCHANGE FUND - 2000 P & L 19992000 (HK$ bn) (HK$ bn) Gain / (Loss) on HK equities90.1(11.6) Exchange loss(9.9)(11.2) Investment gains on bonds, etc23.667.4 Investment income103.844.6 Other income 0.20.2 Interest and expenses(10.0)(10.5) Net investment income94.034.3 Treasury’s share(45.4)(18.1) Increase in EF accumulated surplus48.616.2

15. EXCHANGE FUND - 2000 P & L 19992000 (HK$ bn) (HK$ bn) Gain / (Loss) on HK equities90.1(11.6) Exchange loss(9.9)(11.2) Investment gains on bonds, etc23.667.4 Investment income103.844.6 Other income 0.20.2 Interest and expenses(10.0)(10.5) Net investment income94.034.3 Treasury’s share(45.4)(18.1) Increase in EF accumulated surplus48.616.2

16. EXCHANGE FUND - HK Equity Portfolio (HK$ bn) Investment in August 1998118.1 Income from Disposal and Dividends101.6 Shortfall on original outlay16.5 * Valuation of Remaining Portfolio (end 2000) * 150.7 * I * Including HK equities transferred from the Land Fund in 1998 (valued at HK$9 bn in 1998)

17. HKMA ACCOUNTABILITY Open and transparent Comprehensive publications Detailed briefings Community outreach

18. HKMA ACCOUNTABILITY Open and transparent Community outreach Comprehensive publications Detailed briefings

19. Briefing to the Legislative Council Panel on Financial Affairs 11 January 2001 HONG KONG MONETARY AUTHORITY