HKMA Chief Executive Norman Chan wants financial industry stability – a tough job in the age of fintech disruption and Chinese expansion.
Hong Kong Monetary Authority Chief Executive Norman Chan Tak-lam, 62, is Hong Kong’s central banker. Paid HK$6.5 million per year (substantially less than his predecessor, Joseph Yam), Chan is still ranked as one of the highest paid central bankers in the world, behind only Mark Carney at the Bank of England. Chan is tasked with managing the local reserve Exchange Fund, maintaining the stability of the local currency and banking system, as well as handling the many new financial market developments in the city, including RMB business, Belt and Road Initiatives and fintech.
After graduating from Chinese University with a social science degree, he joined the Hong Kong government in 1976 and worked in a number of government departments. In 1991, he became deputy director of the Office of the Exchange Fund, which managed the local reserve. Joseph Yam was its director.
In 1993, Chan helped Yam set up the Hong Kong Monetary Authority (HKMA) by combining the Office of the Exchange Fund and the Banking Commissioner’s office. Chan became Yam’s right-hand man as deputy chief executive for 12 years until taking sabbatical leave in 2005. After a brief stint as vice-chairman for Asia of Standard Chartered Bank, Chan became then-chief executive Donald Tsang Yam-kuen’s office director. In October 2009, he took up the top job at the HKMA when Yam retired.
Chan’s office was situated on top of the iconic IFC 2– the 88th floor. From his vantage point, he has a spectacular view of Hong Kong and Victoria Harbour. But the office itself eschews the trappings of power. Books on banking and finance are the main décor. Chan seemingly reflects that sense of austerity with a relatively staid sense of fashion. To break up the relentless focus on financial stability, Chan gets out for some basketball (which suits his considerable height) or some light reading on the history of the Qing Dynasty.
To be a central banker is to worry about stability, and over his two decades at the HKMA, Chan has seen enough of chaos. “Financial stability is the most important factor in Hong Kong. Without financial stability, there would not be other development in the city,” Chan says.
He recalls the 1997 handover and the devaluation of the Thai baht, which triggered the Asian Financial Crisis. “At the time, we estimated Hong Kong would not be hard hit but then a year later, the Hong Kong government had to intervene to restore market confidence.” Chan and other government officials spent HK$118 billion from the Exchange Fund to buy blue chip stocks to back the stock market and fend off speculators trying to attack the dollar and stock market.
The HKMA later carried out reforms aimed at strengthening the capital of the banks to defend themselves from further crisis. To Chan, those reforms explain why Hong Kong banks did better during the 2008 Global Financial Crisis.
Prudence and risk management are watchwords for the taciturn chairman. Shortly after he became HKMA chief executive in October 2009, he introduced eight rounds of mortgage tightening measures on banks to better prepare them for property market downturns, such as in 1997. The result of the measureses was to see average mortgages come downwn to 51 per cent of a property’s value, on average, compared to 64 per cent in 2009 and 70 per cent in 1997. Additionally, averagege capital ratios are 19 per cent, higher than n the global standard. Meanwhile, bad debt ratios atios have been slashed to 0.7 per cent of total tal loans, from 1.9 per cent in 1999, according ng to Chan.
The aim is not just about targets. gets. “We don’t merely want banks to preserve more capital. Rather, we keep remindingminding them of the need to establish a prudent rudent management culture,” he says. “It It is important for banks not to blindly ly chase profits, but make risk managementent and customers’ interests their top priorities.” iorities.”
Over the past 20 years, total banking assets have doubled to HK$20 trillion. illion. Chan says that growth is due to Hong Kong’s stable economic development and the inflow of international investment. “The internationalisation of the yuan since 2009 also led Hong Kong banks to expand rapidly into yuan financing and trading.”
Despite China opening
up to the market, which means foreign investors have more direct access into the mainland market, Chan believes Hong Kong’s role as go-between for the mainland and the rest of the world will not end. “The more opening up of the mainland, the more business volume between the mainland and international investors, which would add to the role of Hong Kong as a super connector,” he reckons. But it is the challenge of fintech and its power for disruption that could be most disturbing to a man so focused on stability. Fintech will drive Hong Kong banks to excel, he says, rejecting the critique that the city was lagging behind Singapore in using technology, including artificial intelligence and big data analysis. “There are areas where Singapore is moving faster, but Hong Kong has also been quick in launching the Sandbox and other measures to promote fintech,” Chan says. He adds that eight banks are already applying to test 18 applications in the Sandbox, the HKMA programme that allows banks to select small groups of customers for testing new fintech services before a full-scale launch.
Regulatory questions are related to the development of fintech, and the question of whether Hong Kong should have one superbody or four financial gatekeepers comes up. Singapore, supposedly leading Hong Kong in fintech, notably has one regulator.
“There is no one-size-fits-all. The superregulator model and the multiple regulator model each have their own merits and disadvantages,” Chan says. “Each market could choose to use the regulatory model they think best suits their needs. I believe what is more important (is) to make sure the different regulators work together to handle market development and enforcement.”
Chan hints at a kind of informal system that has developed between the four agencies. “Our colleagues at the HKMA talk with the SFC almost everyday. We let the SFC take the lead in handling conduct of the banks’ staff in selling stocks or investment products.” Likewise, the HKMA will work with the Insurance Authority (IA) when it comes to customers buying insurance products through banks. The growing number of mainland Chinese people buying financial products through Hong Kong banks or the stock connect schemes requires coordination with Chinese regulators, Chan says, an added layer of complexity.
The SFC and IA both issue licenses to individual staff of brokers and insurance companies, but the HKMA has no plan to follow suit. Chan believes it is better for banks to handle their own staff in terms of qualifications and certifications, though the HKMA does offer training in important areas such as cybersecurity and wealth management.
But ultimately, it is Hong Kong’s HR that Chan reckons will determine the city’s future success or failure. “As competition from neighbouring centres intensifies over the years, it is not just people that we need. It’s about turning people into good people, and good people into great people. Without people, Hong Kong has nothing.”
“WE DON’T MERELY WANT BANKS TO PRESERVE MORE CAPITAL. RATHER, WE KEEP REMINDING THEM OF THE NEED TO ESTABLISH A PRUDENT MANAGEMENT CULTURE” – Norman Chan