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Shirley Yam

It was understandable that banks had to manage their credit risk, but I hope they will not [tighten credit] across the board. Now should be the time to help each other, not a time for rocking the boat.
Hong Kong Monetary Authority  chief executive Joseph Yam Chi-kwong  October 28
When a central banker makes an appeal on moral grounds, the conditions out there must be  damned serious.
Factory owners in Guangdong are getting calls from their bankers asking for repayment because the banks want to exit from the industry completely.
Others have had their banks tell them their credit line  had been cut  15 to 20 per cent immediately under an 'across the board' policy.
Most travel agencies and beauty salons have received notice from banks that credit card payments will be settled in two months rather than days.
The worst is that, contrary to some media reports, these drastic actions are spearheaded not by  the liquidity-stressed foreign banks but their major local counterparts  that account for more than 70 per cent of corporate lending in this city.
Many of them have been blaming the global credit crunch, confidence crisis and deteriorating economy. Yet a closer look shows these are no more than overstatements. Sheer panic rooted in a much weakened credit control system and culture is perhaps the more  plausible reason.
Now let's look at the usual  suspects one by one.
First, the tight liquidity supply at the interbank market following the confidence crisis. It is true that confidence remains weak and rates for long-term funding stays high. But given their wide Hong Kong dollar deposit base, major local banks rarely rely on the interbank market for funding.
Second, after the write-down on credit-related products, balance sheets deteriorate and therefore lending ability shrinks. But the exposure of local banks  to these financial instruments is too small to have any impact on  capital  and therefore the lending ability of our well-capitalised banks.
Third, there is a need to set aside capital to buy back Lehman Brothers-related minibonds or to compensate customers. But, with the exception of Bank of China (Hong Kong), major local banks have not been active distributors of the minibonds.
Fourth, having witnessed last month's run on the Bank of East Asia, no one can be sure of  the banks' deposit base. But there is already a 100 per cent guarantee for all deposits provided by the government.
Fifth, foreign financial  houses remain fragile and counterparty risk cannot be underestimated. But that will only justify tighter credit for export-related business not a non-discriminatory cut.
Sixth, winter has yet to come, and any banker will play safe. True, but this does not explain cutting every corporate's credit line by 15 to 20 per cent before any credit review.
So why  have banks resorted to non-discriminatory cuts instead of credit reviews?
One has to understand that the latter involves a detailed analysis of the client's balance sheet, business edge, industry prospects and management quality, requiring relationship managers to have a good understanding of not just the client but the industry both upstream and downstream.
'The question is how much faith can be put in a relationship manager's assessment in bad times,' a corporate lending team head of a major local bank has admitted.
The unspoken truth is that, over the past decade, the liquidity flood and change in business model have turned relationship managers  into salespeople.
When any listed corporate can easily get a HK$20 million unsecured loan at a price that was once the privilege of blue chips, profit from lending is meagre. Relationship managers are therefore asked to make up with volume and diversity.
Instead of managing a dozen  accounts each, they now oversee more than 50 accounts.
Instead of focusing on risk monitoring, they are more interested in cross-selling, like luring the clients into buying the financial instruments that bring both the bank and the manager much higher profits.
With their pay linked to total account revenue, a relationship manager can easily get a five- to six-month bonus for doing good cross-selling.
So we've seen bankers going to karaoke with factory bosses during site visits, ostensibly made to review the company's credit.
So we've seen loans continuing to grow in the past half of this year despite warnings of a weakening economy and calls for credit reviews from the HKMA  a year ago.
As the tide turns,   complacency has turned into panic.
Now the HKMA has stepped in again, demanding explanations  for any non-discriminatory credit cut. Hopefully,  credit will be gradually relaxed. But by then, many businesses and jobs will  be history.



Banks' panic will send  businesses to the wall