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HONG KONG, April 29 (LPC) - Hong Kong Monetary Authority Deputy Chief Executive David Carse said
on Thursday he could not rule out using statutory powers on banks who stand in the way of a successful debt workout if "moral suasion" proved insufficient.
He said he found it difficult to envisage circumstances where the HKMA would use its more formal powers, but that if a particular workout was of great importance "I can't rule it out."
"We would need to look at whether the issue was big enough in the public
interest to justify the use of our formal powers," Carse said. "We haven't used our formal powers up to now --
it hasn't been our practice to
do so. We rely on moral suasion and we will continue to rely on moral suasion."
The number of compulsory winding-up orders in Hong Kong has leapt to 763
in the 1998/99 financial
year, an all time high. The average in the previous five years was 480.
Carse, speaking at a business luncheon, said that since the introduction
of the so-called "Hong Kong
Rules" last April -- the Hong Kong Association of Banks' guidelines on how
banks should handle debt workouts
-- the HKMA had been involved in 10 cases to act as an "honest broker."
Typically the authority intervened when a small minority of banks, sometimes only one, refused to sign a
restructuring agreement or threatened action that would have caused the workout to collapse, he said.
In those circumstances, the HKMA would expect the recalcitrant bank or banks to come up with a very
persuasive case to justify why they did not go along with the majority view.
In 1998, domestic lending in Hong Kong fell by HK$122 billion of which over 60 percent was the result of
the withdrawal of Japanese and contintental European banks, said Carse.
Carse noted that as foreign banks have sought to cut their exposure to Hong Kong, their commitment to pursue successful workouts may have been undermined.
"Clearly if banks are reducing their commitment they may feel that they have less responsibility in relation
to workouts," Carse said. But he noted that foreign banks should cooperate
in workouts because it was in their own best interests.
"The principle of a workout is that the bank should do better than they would do in a liquidation," Carse said.
"Otherwise there is no point in the banks participating and you might as well throw in the towel."
"The banking system can only work effectively if there is an effective means of restructuring debt," Carse
added. "It is not however our practice to use our powers under the Banking
Ordinance to force banks to take
decisions on workouts which are against their commercial judgement."
((Paul Caine, Hong Kong Newsroom +852 2568-6773, Fax +852 2526-1400 hongkong.newsroom at reuters.com))
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Thursday, 29 April 1999 09:50:23 RTRS [nHKG66997]
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