The Hong Kong Monetary Authority (HKMA) announced Thursday it has introduced two refinements to measures to ease local banks' term funding pressures and provide assurances to the market about the availability of liquidity.

HKMA chief executive Joseph Yam said the authority will extend the maximum tenor of collateralized term lending from one month to three months, and set a lower lending rate for the term-lending facility compared with the relevant interbank interest rate.

The arrangements take immediate effect and will remain in force until the end of March 2009, according to the HKMA.

Yam said the refinements were designed to help banks meet their year-end liquidity needs.

"The two refinements, together with the other four measures introduced on September 30, will help ensure adequate liquidity within the banking system and further ease pressures in the interbank market," he said.

On Sept. 30, the HKMA, the de facto central bank in the city, announced it would lend term money of up to one month to individual licensed banks against collateral of acceptable credit quality.

Together with the other measures, the arrangement has helped encourage lending in the interbank market, and interbank rates have gradually eased.

However, concerns about counterparty risk persist, and the liquidity in the longer end of the interbank market, especially beyond one month, remains tight. The authority decided to introduce refinements to enable banks to secure term money beyond one month.

(Xinhua News Agency November 6, 2008)