In Brief

• China allows Renminbi retained overseas to be funnelled back to the interbank bond market – The People's Bank of China (PBOC) is allowing three types of financial institutions (FIs) to invest Renminbi obtained outside the mainland as a result of cross-border trade settlement or central bank swaps into the mainland's interbank bond market (bond market). The three types of FIs are Renminbi clearing banks in Hong Kong and Macau, foreign central banks that have entered into Renminbi swap agreements with China, and overseas banks engaged in Renminbi cross-border trade settlement. As such, Hong Kong authorised institutions (AIs) engaged in cross-border Renminbi trade settlement can participate in the bond market, subject to approval of PBOC. Cash and repo transactions are allowed, subject to a quota assigned to individual institutions. However, AIs cannot deal with group companies in the bond market. AIs are reminded to have adequate controls to ensure compliance with relevant rules and regulations.
     
• China lowers interest rates and down payment requirements for areas hit by mudslide – For mudslide affected area in Gansu Province and Sichuan Province, China government is allowing banks to lower the minimum down payment requirement for mortgages by 10 percent, and the mortgage rates to 60 percent of the benchmark interest rates.
    
• Overdue discounted bills rise while half-year overdue credit card debt falls – Overdue discounted bills in China rose 10.1 percent from the end of the first quarter to RMB 10.5 billion at the end of the second quarter. Credit card balance overdue for half year or more fell by 17.1 percent from the first quarter end to RMB 7.3 billion at the end of the second quarter. The half-year delinquency ratio for credit cards also fell by one percentage point from the previous quarter to 2.5 percent at the end of the second quarter.
     
• HKMA explains prudential measures on mortgages – The Hong Kong Monetary Authority (HKMA) has further explained prudential measures announced last week on mortgage loans. The maximum loan-to-value ratio of 60 percent will be applied to properties valued at HKD12 million or more and to properties which are not for self occupancy. With regards to the measure on standardising debt servicing ratio (DSR) to 50 percent and on borrower's repayment stress tests, AIs are reminded to use the prime-based rate to calculate the DSR ratio for HIBOR-based mortgage loans. The HKMA has provided an illustrative example on the impact of the new measures. AIs are reminded to ensure that their staff fully understand the new measures and can explain them to customers. AIs are also reminded to update mortgage loan calculators hosted on internet website on the latest measures. 
     
• HKMA issues circular on marketing IPPs through third parties – The HKMA has issued a circular on risk management measures for AIs marketing instalment payment plans (IPPs) through third parties. The measures, which AIs must adopt by 1 October, cover documentation, managing relationships with merchants, and auditing compliance of merchants. IPPs usually involve credit card prepayment for goods or services to be delivered by the merchant at a later date or over a period of time. IPPs are used by service providers like health and fitness clubs, educational services providers and travel agents. Disputes may arise when the merchant goes out of business and the reputation of AIs may subsequently be damaged.
     
• HKMA to conduct "mystery shopping" exercise – The HKMA has engaged a service provider to conduct a mystery shopping exercise. The exercise shall start in September and is intended to help the HKMA gain an insight on compliance with the Code of Banking Practice. It will cover various banking services offered to personal customers and will focus on retail banking. Good and bad practices identified by the exercise may be shared with the industry in aggregate form.

Top