HK banks in China can seek PBOC liquidity

The Hong Kong Monetary Authority said on Friday Hong Kong banks operating in China can apply to China's central bank, as well as the HKMA, for extra liquidity, a further measure to help firms weather the global credit crisis.

"This should help Hong Kong companies in China," HKMA Chief Executive Joseph Yam told legislators.

"If Hong Kong banks can't get (Chinese currency) liquidity they can approach the HKMA or the People's Bank of China who will ask for collateral," Yam said. If Hong Kong banks with branches in China do not have collateral in China they could provide collateral to the HKMA instead, Yam said.

Tight credit amid the global financial crisis has created cash-flow problems for Hong Kong-owned companies in Guangdong province, China's southern manufacturing belt neighbouring Hong Kong. That has put further pressure on firms already struggling with weakening global demand and surging costs in China where thousands of factories have gone out of business this year.

Earlier this month, Hong Kong announced loan guarantees and extra liquidity for loans to give small and medium-sized enterprises in Hong Kong more flexibility in obtaining cash flow as the credit crisis has made banks reluctant to lend.

The HKMA has urged banks to be more flexible in supplying credit. On Friday, Yam said the HKMA would also be more flexible in forcing banks to stick to minimum capital adequacy ratios, which in any case are above a target set by the Bank for International Settlements.