HONG Kong banks will be consulted soon on how best to implement bilateral netting arrangements which could reduce banks' capital requirement for trading in off-balance sheet activities such as foreign exchange and interest rate-related transactions.
Recognising the netting method will lead to the calculation of the risk weighting on the net amount rather than the gross claims arising out of transactions with the same counter-parties.
Deputy chief executive (banking) of the Hong Kong Monetary Authority David Carse said a consultation paper would be issued soon to the banking industry asking banks to seek their own legal advice if they want to implement netting.
Opinions sought from the Hong Kong Law Society had confirmed that Hong Kong laws were sympathetic to netting.
''We may set out conditions whereby we will allow bilateral netting; some ground rules for banks to observe,'' Mr Carse said.
It will then be up to the banks to draw up their contractual agreements with each other on netting.