The Hong Kong Mortgage Corp plans to issue up to $5 billion in mortgage-backed securities next year to help develop the debt market, according to its deputy chairman Joseph Yam Chi-kwong. 'The aim . . . is to issue between $3 billion and $5 billion in mortgage-backed securities,' Mr Yam said. Mr Yam, also chief executive of the Hong Kong Monetary Authority, was speaking at the corporation's $1 billion inaugural issue with Dao Heng Bank. Mortgage-backed securities was a new business line for the corporation and an important development for the securitisation market, he said. 'It will serve to channel, deepen and diversify our debt market and lessen disproportionate reliance on the banking and equities market.' Under the agreement, Dao Heng will sell eligible mortgages on a back-to-back basis to the corporation, which will transfer them to a special-purpose company, the HKMC Funding Group. The company will then issue the securities to Dao Heng Bank, with a guarantee from the corporation for timely payment of principal and interest. Dao Heng can keep the securities as part of its investment portfolio or trade them with professional institutional investors. Dao Heng Bank chief executive Kwek Leng Hai said yesterday the transaction was a significant step forward for the Hong Kong dollar-denominated debt market. 'Notes issued under this programme not only benefit from the HKMC guarantee but are also fully mortgage-backed, so represent a significant product diversification within this market,' Mr Kwek said. Mortgage-backed securities carry a 20 per cent risk weighting for capital adequacy treatment, instead of the usual 50 per cent for mortgage loans. Any such securities issued under the programme will also qualify as liquefiable assets under the banking ordinance. The corporation, which is fully owned by the Government through the Exchange Fund, was set up in November 1997 to buy mortgage loans from various banks and to repackage them into negotiable securities. As of the end of June, it had bought $10.32 billion of mortgage loans from banks. Mr Yam said the corporation was expecting to close a similar deal with American Express Bank later this year.