Mortgage Corporation lets civil servants pretend to be bankers
with Jake van der Kamp
The increase in profits and ROE [return on equity] was mainly attributable to the favourable interest rate environment, excellent loan performance, prudent business development strategy and strong commitment to risk management.
Hong Kong Mortgage Corporation
2010 results press release, April 12
Our senior civil servants in finance and monetary affairs occasionally show signs of not being happy that their careers are entirely complete. They can pontificate sonorously on the state of the world economy and Hong Kong's initiatives to establish itself as a global financial centre, but are uniquely vulnerable when someone asks: 'Uh-huh, and when have you ever worked behind a teller's counter? How much money have you ever made on a forex desk?'
Because, of course, the answers to these questions are respectively 'never' and 'none'.
We are talking of people who went straight from the classroom to postings as government administrative officers and were then lucky enough to be assigned to the finance branch rather than to regulation of pig farming in the New Territories. It's either that or they stayed on in the classroom as academics, where they could continue to be ethereal about financial affairs.
But they have gradually come to appreciate that they would have a much greater standing with both the public and peers if they could also claim solid experience of having served in the trenches of the financial world.
Taking a little time out with a commercial bank while waiting for the boss to retire doesn't cut it. All you get is a desk and polite invitations to lunch. As you'll soon be gone again, none of the real bankers will give you much of their undivided time. What you want is a bank of your own, something you can run just like real bankers do.
Presto, the Hong Kong Mortgage Corporation, a subsidiary of the Hong Kong Monetary Authority, a real pretend bank of their own for civil servants who want to pretend to be financiers.
It was not established for that reason, of course. It was set up to help Hong Kong homeowners at a time when money was tight and mortgages difficult to get. But things have since swung the other way. The banks are awash with cash, mortgages are priced at huge discounts to the best lending rate and you have to be a very bad risk indeed to be rejected.
So the Mortgage Corporation has taken to dabbling in other things in recent years, among them taxi-licence financing, because we all want to push up this speculative market so that we can pay higher taxi fares. And Korean mortgage securities because, because ... Well ... Yes, because ... Hmmm ...
More recently it has adopted schemes to guarantee the small company loans of commercial banks that wouldn't mind getting some of these lower-quality assets off their books, and to 'revitalise the Home Ownership Scheme secondary market', in other words help owners of government-subsidised housing sell their flats to people for whom these flats were not intended.
It has also toyed with a rather dubious annuity scheme called reverse mortgages and has formed a study group on microfinance.
The reason that the HKMC can do all these things is that it can lean on the government's sovereign credit rating without having to lift a finger to build up its own creditworthiness. If things go wrong, the parent HKMA has a HK$2.5 trillion balance sheet and - guess what? - is run by the same people.
But best of all, they can now make results announcements that talk about after-tax profits, return on equity and the capital-to-assets ratio, just like real bankers do. Doesn't that feel grand? It makes it so much more of a thrill to speak of a favourable interest-rate environment and a commitment to risk management. Look, Mom. Look, Dad. I can do it too.
The only thing I don't quite understand about it is why one or two real bankers, including David Li Kwok-po of Bank of East Asia, sit on the board of this make-believe bank. It must confront them with a conflict of interest occasionally. They do real business in areas in which the HKMC carries out its pretences.
If it were me, of course, I would take advantage of the HKMC's naivety to whisper a few items of interesting news to a junior on way back to the office from an HKMC board meeting. But Li, of course, has had the unhappy experience of doing that sort of thing on an airplane ride in America and is unlikely to do it again. Why he bothers I can't tell.
Why anyone bothers I can't tell. What the HKMC needs is a winding up order.