IMF Affirms HK's Financial Stability

The Government welcomed the release of a report today by the International Monetary Fund (IMF) reaffirming Hong Kong's position as an international financial centre with a resilient financial system, sound macroeconomic and prudential policies, and robust regulatory and supervisory frameworks.

The IMF's affirmation was carried in the Financial System Stability Assessment Report, published following a comprehensive assessment conducted by the IMF on Hong Kong's financial system.

The IMF commented that Hong Kong's macroeconomic and prudential policies have provided it with important buffers to cope with the current economic slowdown and future shocks.

Underpinned by large foreign exchange reserves, Hong Kong's Linked Exchange Rate System has continued to support financial stability, it noted.

Robust regulatory and supervisory policy frameworks are in place to support the development of the financial sector, and the institutional framework for systemic risk monitoring and oversight is well established.

Rigorous stress tests performed by the IMF confirmed that Hong Kong's financial system remains resilient in extreme stress scenarios.

The report acknowledged that Hong Kong is a major international financial centre with one of the largest financial sectors in the world.

Hong Kong's banking system holds assets equivalent to around 9.5 times its gross domestic product (GDP), and is a major contributor to the profitability and total assets of several global systemically important banks.

The city is a global asset and wealth management centre with assets under management amounting to 10 times its GDP in 2019.

It hosts one of the world's largest stock exchanges, with a market capitalisation of US$6.1 trillion.

Its life insurance sector is also amongst the world's largest, and it has the largest foreign exchange swap market in Asia, the report added.

Financial Secretary Paul Chan said the positive appraisal clearly recognises the Government's long-standing efforts to safeguard financial stability.

He said: “We will continue to reinforce our core strengths, give full play to our unique advantages and identify new areas of growth, with a view to ensuring the long-term competitiveness and prosperity of Hong Kong.”

Secretary for Financial Services & the Treasury Christopher Hui thanked the IMF for the fair and balanced assessment of Hong Kong's financial system, which again confirmed the resilience and stability of the system.

The Government also welcomed the IMF's assessment that policy oversight of the financial system is strong and has been modernised.

The report said that banking supervision and regulation in Hong Kong continues to be strong, and that regulation and supervision in the insurance sector has been strengthened following the establishment of the Insurance Authority.

It welcomed the authorities' efforts to address the risks of climate change, including the implementation of climate-related mandatory financial disclosures by 2025, adoption of the Common Ground Taxonomy, and promotion of climate-focused stress testing for the financial sector.

The report pointed out that the crisis management framework in Hong Kong has been significantly strengthened by the introduction of a comprehensive resolution regime under the Financial Institutions (Resolution) Ordinance in 2017, further safeguarding the stability of the financial system.

It added Hong Kong is well-positioned to develop financial technology and acknowledged the rapid development of the fintech industry, noting that the authorities play an active role in promoting the city as a fintech hub in Asia and adopt a proactive approach to promote financial innovation and inclusion.

It also noted Hong Kong's solid regime to fight money laundering and terrorist financing.

To enhance the already robust financial system, the report tendered a number of recommendations. The Government and financial regulators will study them carefully and take forward the recommendations as appropriate.

The IMF Mission visited Hong Kong in September 2019 and conducted a virtual mission in February and March for discussions with government authorities, financial regulators and market players. The report was considered and adopted by the IMF Executive Board on May 21.