HKMC not playing on a level field
By engaging in the mortgage insurance business, the corporation is crushing out some nascent start-ups in the private sector
Jake van der Kamp
"We are not going to compete with the private sector. When there is a need from the society that the private sector is yet to fulfil, we will be there to help close the gap. The new name will reflect the business more appropriately."
Raymond Li Ling-cheung,
HK Mortgage Corporation,
SCMP, October 7
The new name will be created by adding the words "Credit and Guarantee" between the words "Mortgage" and "Corporation". My congratulations to you on your insight if this reflects anything of significance to you.
Let's clear up several immediate misperceptions. Li will make a distinct break with the past if he guides this interventionist government agency away from competing with the private sector. Almost the first thing it did on its inception was jump into a private-sector business, mortgage insurance.
Nothing wrong with that, you will say. If the HKMC can offer financial services more efficiently than a private-sector entity can do, so then let it compete by all means.
I agree if it does so on a level playing field, but this one is not. A crucial determinant of competitive success in financial services is cost of funds. If you are truly good at what you do and have the trust of the public, then you can obtain funds at a lower interest cost than most others can do.
From day one, however, and with no track record at all, the HKMC could obtain funds at the best possible rate by leaning on the government's credit rating. Give me a banking licence and the same privilege and I shall create one of Hong Kong's bigger banks for you in record time. There is nothing to the corporation's credit here.
What it actually did in mortgage insurance was crush some nascent private-sector businesses that might have taken the idea further than the HKMC ever did. Admittedly, this could not be very far in today's environment of ultra-low interest rates but the point is that having an elephant stomping about at random is no way to nurture start-up businesses in any field.
Mortgage insurance - topping up down payments with extra loans to get around official mortgage loan limits - is in any case an unsuitable business for government. The 2008 housing finance crisis in the United States came about largely because the US government did something very similar by lending to unsuitable risks through two elephant mortgage agencies.
It never went very far in Hong Kong, of course. The property market crashed soon after the HKMC was set up and the corporation found itself looking elsewhere for business.
This has included financing taxi licence purchases, which is a classic speculators' game on which Hong Kong's well-being in no way depends, and buying Korean fixed-income paper, don't ask me why.
One wonders, in fact, if there is much left aside from financing blue cheese imports from the moon in which the HKMC has not by now dabbled, and yet Li still speaks of expanding the product range.
There are two more points on which I really must take issue with him. The first is his contention that "when there is a need from the society that the private sector is yet to fulfil, we will be there to help close the gap".
How would he know when such a need arises and is truly more than just the usual shrill demand for money from the many corporate beggars who hang about outside the financial secretary's door? Every banker I have ever known is on a constant hunt for new opportunities. What need that is not a straight public handout will the HKMC ever sniff out before others do so? This is no keen-nosed bloodhound. This is a fat, pastured cow.
As much to the point, the HKMC is a subsidiary of the Hong Kong Monetary Authority, the first line of prudential supervision of our banks. It is improper, and actually dangerous, for a regulatory agency to involve itself directly in a business that it is meant to supervise.
What we have here, in short, is another of these government agencies that have long passed their sell-by dates. The difference in this case is that the HKMC passed that date almost the day it was established.