Unlike most other banking systems in the region, we have had the luxury of being able to look ahead without being distracted by the need to cope with a banking crisis. Of course, the banking sector here has had its ups and downs over the last few years. But the results of the banks for the year 2000 showed that they have consolidated their recovery from the Asian Crisis. Pre-tax operating profits of the local banks rose in aggregate by 38% in 2000. Admittedly, this largely reflected the decline in bad debt provisions. But even if we strip this out, profits still rose by a reasonable 10%. This recovery should however not disguise the fact that a banker’s job is not an easy one at present. This is shown in two main features of current market conditions. The first is that domestic loan demand has not yet shown a sustained recovery. This reflects continued sluggishness in private sector investment, recourse by the corporate sector to other forms of financing such as the equity and bond markets and the lack of revival in the residential property market which has reduced the demand for mortgage loans. Related to this is the fact that the banks are flush with liquidity. A recent study by Goldman Sachs concluded that the surplus deposits in the banking system had tripled since 1997 to reach $ trillion. According to the study, this represents 124% of GDP, the highest percentage in the world.
Closed to 80 partners have joined the IFFO platform since its launch and today, I am pleased to welcome the City of London as the newest partner to IFFO. I believe City of London will serve as the linkage to foster partnership between the financial institutions of London and Hong Kong to leverage on the tremendous opportunities in infrastructure financing and investment. Being an investor itself, the HKMA is aware of the challenges when it comes to infrastructure investment. I think there are currently two salient gaps on which IFFO is focusing its work. First is the funding gap. According to an estimate, there would be a funding gap of over $ trillion in the coming 15 years in infrastructure investment. There is no way the public sector or multilateral development banks can shoulder this funding responsibility alone. More private capital is needed. Three months ago, the HKMA signed an agreement in London with the International Finance Corporation under the World Bank Group, committing $ billion to the innovative Managed Co-Lending Portfolio Program, which is a debt mobilisation platform for emerging markets. Meanwhile, we are working with some likeminded institutional investors to identify suitable opportunities. The aim of all these initiatives is to create a demonstration effect to encourage more private investment in infrastructure. The second gap is what I would call a language gap. In considering infrastructure pipeline, institutional investors talk more about the risks and how they can be mitigated, whereas project developers may be relatively more opportunity-driven.