SEEK­ING STA­BIL­ITY

HKMA Chief Ex­ec­u­tive Nor­man Chan wants fi­nan­cial in­dus­try sta­bil­ity – a tough job in the age of fin­tech dis­rup­tion and Chi­nese ex­pan­sion.

The Peak (Hong Kong) - - The Brief -

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

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