THOMSON BankWatch has welcomed a decision by the Hong Kong Monetary Authority (HKMA) to recognise its ratings for liquidity purposes, a development which should see a substantial increase in rated issues. 'It's a very important development,' said Thomson BankWatch Asia president Philippe Delhaise. 'We've been waiting for that [recognition] in order to offer banks in Hong Kong an opportunity to get a rating. Moody's [Investors Service] and Standard & Poor's do not normally rank smaller banks.' Under Hong Kong's banking regime, banks have to maintain a proportion of their assets in liquid assets such as cash or government bonds or other qualifying and rated instruments. They have to make a return to the HKMA on their liquidity positions at the end of each month. Cash and gold are ranked at 100 per cent, and marketable debt securities are included as liquid assets if they carry a qualifying credit rating. Qualifying securities maturing in not more than one year are ranked at 100 per cent, and securities maturing after more than a year are ranked at 95 per cent. The issues need to carry ratings even if the issuers are not rated. Mr Delhaise said: 'In all respects, any bank in Hong Kong acquiring assets in the nature of floating-rate certificates of deposit (FRCD) would rather buy an issue that has been rated rather than one which is unrated . . . because they might not need that paper for liquidity purposes now, but they might during the life of the paper.' Bank rating specialist Thomson BankWatch rates banks regardless of size. Of about 250 banks in 40 Asian countries (excluding Japan), only about 10 carried a rating from either Moody's or Standard & Poor's, Mr Delhaise said. Thomson BankWatch rates 30 banks in Hong Kong, 16 in China and four in Macau. The recognition should help liquidity, Mr Delhaise said. Before banks would examine an issue for credit-worthiness and then buy and hold it to maturity. A decision to trade the paper in the secondary market involves new credit-worthiness assessments. Investors could now decide to trade the paper without having to recheck the credit and could move quickly to exploit arbitrage opportunities in the secondary market. Late last year, Mr Delhaise criticised the low level of bank disclosure in the region and said that because of the HKMA recognition 'obviously we are going to be much more stringent when it comes to issuing paper'. The only local issue which Thomson BankWatch has rated is the Chekiang First Bank FRCD. Thomson BankWatch rates more than 600 financial institutions - banks, securities firms, finance companies and thrifts - in 40 countries around the world and has more than 1,500 subscribers.
