The credit risk capability, both at the point of origination in terms of know-yourcustomer (KYC) and customer due diligence and for ongoing monitoring, must be enhanced to cater for the rapid growth of this new line of business. Naturally the HKMA has accorded high priority in our ongoing supervision of banks to ensure that the underwriting standards are upheld all the time. I am pleased to report that the non-performing loan (NPL) ratio, which is a key indicator to assess the credit quality of the Mainland-related lending, has remained at a healthy level of around 0.7%, which is just slightly above the overall NPL ratio of 0.56% for all bank loans. Wealth Management 11. Given the rapid growth and accumulation of wealth in Hong Kong and the Mainland, there is a strong demand for wealth management services. The asset-under-management of private banking in Hong Kong now amounts to roughly $ trillion. Again, risk management is the key to the sustainable development of the private banking industry. There are two key aspects of risk management in the private wealth business. First, the banks must conduct proper KYC processes, especially on the source of funds and ongoing monitoring of suspicious fund flows for anti-money laundering / counter-terrorist financing purposes. Second, the private banks must understand the risk appetite/tolerance level of their clients on the one hand and conduct proper product due diligence before marketing them to clients.
Excessive risk taking or overly aggressive expansion usually lead to rather unhappy endings, as the financial history is littered with so many such failure cases. As for the regulators, they should stay true to the risk-based approach with the right sense of proportionality and should adopt an open mind on how the risk can be addressed. The regulators should stand ready to discuss with the industry to see if (c) there can be alternative ways of dealing with the risks identified. The industry is always closer to the markets and the clients they serve and should therefore have a better sense of how to get things done in a way that would cause less disruption or inconvenience. The regulators must not fall into the trap of complacency, and should constantly stay on alert and maintain a sense of unease even in good or peaceful times. Banking and (d) financial crises can never be avoided all together, but we can at least build sufficient buffers to lower their chance of occurrence or when they happen, the damage can be reduced or contained. The industry should stand ready to challenge the regulators if the severity of the risk is overstated or there are better alternatives than what has been put on the table. On the (e) other hand, the industry must avoid over-interpreting or gold plating the regulators’ requirements in such a way that is safe from the compliance point of view but would create bad customer experience without enhancing the underlying risk management outcomes. 16.