As in many countries in the region, some banks in Hong Kong have placed too much emphasis on collateral in making their lending decisions. Collateral does of course have an important part to play in providing secondary protection to the lender if the borrower defaults. But the primary consideration should be debt servicing capacity of the borrower. The drawbacks of over-reliance on collateral become all too clear when asset values collapse as they have done during the Asian crisis. The act of realizing collateral can in itself be destabilizing as we have seen when banks have sold shares in listed companies pledged by their owners to secure their private borrowing. In such cases, confidence in the company concerned can be seriously undermined. I should point out however that some of the worst fears that had been expressed about the property exposure of banks in Hong Kong have so far proved to be unfounded. The major property developers have come through the recession relatively unscathed and the performance of the all-important residential mortgage portfolio has been much better than other types of lending. At end-March of this year, the delinquency ratio for mortgages was only 1.13%. This seems to confirm that homeowners will do all they can to avoid default, though this may be at the expense of cutting back on other forms of discretionary spending.
More recently, the ringgit had adjusted to reflect changes in the global economy including the developments in the US economy and global crude oil prices. Certainly there are risks associated with different levels of exchange rates and that different levels of exchange rate will benefit differently the various sectors and stakeholders in the economy. Looking forward, while the financial markets can be capricious, as market players focus on short-term developments, our role as policy makers is to look beyond these noises. As we continue to address our vulnerabilities and improve domestic fundamentals, the ringgit will eventually reflect the strength of our economy. Our path forward would continue to be characterised by fast-moving and ever-evolving macroeconomic risks and constantly evolving global trends. In facing the complex and multifaceted risks associated with it, the Malaysian economy is subjected to concerns of price stability and many other considerations that could affect overall macroeconomic stability. This brings me to another one of our approaches in relation to ensuring overall macroeconomic stability. We do not rely on any single policy tool. In particular, dependence on monetary policy as the sole instrument would be too narrow an approach. Monetary policy at best provides an enabling macroeconomic environment to support growth, and it should not be relied upon as the primary instrument to drive growth. In this regard, the Bank’s policy toolkit relies on a broad set of instruments to achieve overall macroeconomic stability. This includes considerations of macroprudential and pro-growth policies, as well as our advice on fiscal policy to the government.