The Hong Kong Monetary Authority (HKMA) has intervened again to defend the city's banking system and urged lenders not to be too strict on loan approvals for small- and medium-sized enterprises (SMEs) badly in need of funds to finance economic activities and sustain growth.

The city's central bank added HK$15.5 billion in cash to the banking system. It was the fifth time since September that an injection has been announced, and the latest amount is four times the previous injection made last Thursday.

"The Hong Kong dollar exchange rate remains stable," said Thomas Chan, an HKMA spokesman. "Taking into account the strong precautionary demand for liquidity in the market, the HKMA operated within the convertibility zone, purchasing US dollars against Hong Kong dollars."

HKMA Chief Executive Joseph Yam said that bank may be concerned about the solvency of SMEs, but the financial crisis is gradually hurting local firms and retail companies.

"I don't think banks should trim their loans, regardless of the borrowers' business sectors," Yam said yesterday.

"I believe it is unlikely that the capital cushions of the local banks will, in the next two years, be eroded to such an extent as to require drawing on the CBCF (Contingent Bank Capital Facility)," Yam said on the HKMA website.

"Although some erosion may be possible, either directly as a result of the impairment of financial assets induced by the financial crisis, or indirectly as deteriorating economic conditions affect the repayment ability of borrowers," he said.

Since the global economic meltdown, banks have been more reluctant to lend money to some companies. They have also taken a tougher stance regarding credit card debt.

Some Hong Kong retail chains have recently filed for bankruptcy because of the tougher business climate.

Hong Kong's currency has been pegged to its US counterpart since 1983, ranging between HK$7.75 and HK$7.85 to the US dollar.

(HK Edition 10/28/2008 page2)