THE Hong Kong Monetary Authority has defended its decision to allow four central banks in the region to engage in repurchase agreements, reiterating that the move does not expose the territory to risk.

The authority's chief executive, Joseph Yam Chi-kwong, said pacts with the central banks of Malaysia, Thailand, Indonesia and Australia allowed it to provide liquidity on a two-way basis through repurchase, or repo, agreements.

Under repo agreements, a bank needing cash can sell US dollar debt securities after promising to buy them back at a set time and price.

Repos are a popular tool in the financial markets because the securities represent collateral in the event the seller fails to buy them back at the agreed time and price.

Several members of the Legislative Council's financial services panel yesterday expressed concern over possible implications for the Exchange Fund, during a briefing by Norman Chan, the authority's executive director, monetary management.

Mr Chan said the agreements did not mean the territory was taking on additional risk in dealing with central banks.

Mr Yam also defended the agreements.

" We're not lending [money]," Mr Yam said. " We're exchanging cash for assets."

He said there was no question that the fund was taking chances by engaging in repo transactions.

" What's the risk? There's no risk investing in this," Mr Yam said.

Transactions would remain secret, safeguarding the authority's activities in the market, because the counter-party was a central bank, he said.

There would be no question of Hong Kong entering into such agreements if it was in need of cash itself.

" I would take care of my own interests first," Mr Yam said, adding that such agreements generally were short-term, usually overnight .

The agreements follow informal meetings in Hong Kong involving central bankers and monetary authorities from Australia, China, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines and Thailand.

Central banks engage in repo agreements with counter-parties in the market which are not central banks, but are wary of betraying their liquidity position to financial institutions in the private sector.

" We look at the liquidity of our assets all the time and this is a good way of obtaining liquidity without telling the market." Mr Yam said.

He said an agreement with the Philippines' central bank was imminent and the authority was talking to the People's Bank of China, the mainland's central bank.

He said the authority probably could engage in repo transactions with the US Federal Reserve without the formality of signing a repo agreement.

Meanwhile in Singapore, the Monetary Authority of Singapore said it would sign a repo agreement with at least one more country from the Association of Southeast Asian Nations.

On Saturday, Singapore, which did not attend the Hong Kong meeting of central banks, signed a pact with Indonesia, which did attend the Hong Kong meeting.

All rights reserved.