Yam warns of subprime fallout
Hong Kong's banking sector may not suffer any systemic risk from the US subprime mortgage problem but that is no reason to be complacent, the Hong Kong Monetary Authority warned yesterday.
'The outcome of the US sub-prime mortgage problem and its effect on the global economy are still unpredictable,' said Joseph Yam Chi-kwong, the chief executive of the de facto central bank. Mr Yam in his weekly internet column said that the distribution of risk in the financial system via securitisation could threaten monetary and financial stability.
'While some in the market are hoping for more government intervention to keep the market going, others are projecting that US mortgage credit quality will weaken further in the second half of 2007 or even well into 2008,' he wrote.
Michael Geoghegan, HSBC's group chief executive, said the recent tightening of liquidity showed that lenders were revaluing the risk. He attributed the current problem to lack of confidence in the market.
Mr Yam said what happened to the troubled financial institutions underscored not only the extent of the subprime problem but also the risks that banks and other lenders had taken on, perhaps inadvertently, in an effort to boost revenue.
