(Xinhua)
Updated: 2008-01-30 16:04

Hong Kong's banking system is robust, healthy and well regulated while the subprime mortgage problem of the United States has developed into a credit crisis that may trigger economic recession, Hong Kong Monetary Authority Chief Executive Joseph Yam said in Hong Kong on Tuesday.

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In a written paper submitted to the Legislative Council's Panelon Financial Affairs, Yam said the recent financial turbulence did not have a systematic impact on Hong Kong's economy.

However, the recent market situation was worrying and individual banks in Hong Kong might suffer from their investment in asset-backed securities, he said.

In case of a hard-landing of the US economy or a continued slump in the US housing market, and if tightened credit conditions persist or get worse, growth might fall sharply. The impact on Hong Kong would be larger if the housing difficulties spill over to other sectors of the economy.

Given the uncertainties regarding the outlook for the global financial markets and the global economy, Hong Kong could be affected through both the real economy and financial-market channels.

The subprime problem had no systemic implication for Hong Kong's banking sector and did not affect banks' overall safety and soundness as the aggregate sub-prime exposures were not material relative to their total assets.

The Hong Kong banking sector remains highly liquid, as the amount of customer deposits grew faster than that of loans.

Yam said the market outlook for 2008 remains uncertain, though Hong Kong can withstand the financial turbulence with good risk management. He urged banks to set aside provisions and bad debts for assets affected by the subprime problem.

There are other factors affecting currency stability, including local inflation, and the Chinese mainland's monetary and financial conditions.

Yam said the Chinese mainland's financial situation has a crucial impact on Hong Kong.