The Hong Kong Monetary Authority (HKMA), the city's central bank, has emergency measures available to help the territory combat the worldwide credit crisis, but it must be careful in implementing them, HKMA Chief Executive Joseph Yam said.

"The HKMA has emergency packages that we can use in times of emergencies and depending on circumstances," Yam told reporters yesterday after a special meeting of the Legislative Council.

Yam noted that although contingency measures exist to protect Hong Kong's banking and finance sector, they can't be implemented too hastily, as any sudden move may cause panic.

"If we rush into using them, people may get the wrong perception about the market," he said.

Yam reiterated that the city's banking system is "sound and healthy" and lenders have ample liquidity.

Yam's remarks came a day after a government official said Hong Kong may use all of its foreign currency reserves to stabilize its financial markets after the global credit crisis has sharply pulled down Hong Kong shares this year.

"We'll use all the ammunition if we have to," said Julia Leung, under secretary for financial services, in an interview on Sunday. "Hong Kong should have faith. Smaller companies are already being hit by the lack of capital in the market."

Speaking to legislators at the special meeting, Financial Secretary John Tsang warned that there is an increasing risk of recession in Hong Kong.

"We forecast the risk of a recession next year is getting higher," he said. "The effects of the global crisis are moving closer to Hong Kong."

Singapore fell into its first recession since 2002 in the third quarter, and JPMorgan Chase & Co forecasts that Hong Kong will follow suit in the first three months of next year because of the crisis and mainland's export slowdown.

As Hong Kong is an international financial center, it was inevitable that the city would be affected by the global economic storm, Tsang said. But, he said, there is no need for the government to use its foreign currency reserves to help local banks.

Bloomberg contributed to this story

(HK Edition 10/14/2008 page2)