UPDATE 1-Hong Kong to impose rules on bankers' pay in 2010

(Recasts to lead with HK setting guidelines on bankers' pay)

* Hong Kong to impose guidelines on bankers' pay in 2010

* Guidelines will not prescribe salary levels or limits

HONG KONG, Oct 29 - Hong Kong said on Thursday it plans to introduce guidelines on remuneration for banking staff next year, in the wake of the financial crisis, but will not impose particular levels or limits on individual salaries.

"Remuneration systems which create incentives for inappropriate or excessive risk-taking have the potential to threaten the safety and soundness of individual institutions and thereby ultimately the stability of the banking system as a whole," the Hong Kong Monetary Authority, the city's central bank, said in a statement.

The guidelines would apply to Hong Kong incorporated banks and local branches of foreign banks, the HKMA said.

Hong Kong is one of Asia's top financial centres but its banks have weathered the global financial crisis relatively well because, unlike some of their U.S. and European counterparts, they had relatively little exposure to subprime mortgage lending.

In the United States and Britain, high salaries and bonuses have sparked outrage as bank executives such as Fred Goodwin, former head of Royal Bank of Scotland, walked away with a huge pension while his bank was being rescued by the government.

The only serious public complaint in Hong Kong has been against the salary of the recently retired head of the central bank, Joseph Yam, who was on $1 million a year.

LOAN SCHEME EXTENDED

The HKMA said it was consulting with the Hong Kong Association of Banks on the guidelines. They would cover governance and ensuring a proportionate balance of fixed and variable remuneration, as well as the use of instruments for variable remuneration; performance measurement; pre-defined performance conditions; and adequate disclosure. The consultation will finish at the end of November.

"The HKMA will expect authorised institutions to take prompt action to implement the guideline once issued, with a view to achieving full compliance within the year 2010," the HKMA said.

"The guideline is not intended to prescribe particular levels of, or limits on, individual remuneration," an HKMA spokesperson said.

The global financial crisis and economic downturn pushed Hong Kong into its worst recession since the Asian financial crisis a decade ago.

The territory emerged from recession in the second quarter but the government announced on Thursday that it would extend a $12.8 billion loan guarantee scheme for small- and medium-sized companies to help them weather the global financial crisis as the economic outlook remained uncertain.

The government said the scheme had been extended by six months until the end of June. Its loan guarantee commitment would remain at HK$100 billion ($12.8 billion).

"Considering that the economic outlook in the coming months is still uncertain, we consider it necessary to extend the special loan guarantee scheme for another six months to provide continued support for Hong Kong companies," a government spokesman said.

So far, 22,300 SMEs have applied for the scheme, involving loans amounting to HK$53.5 billion, the government said.

It spent HK$87.6 billion, equal to 5.2 percent of GDP, on relief measures in the wake of the financial crisis. (US$=HK$7.8) (Reporting by Susan Fenton, Editing by Jacqueline Wong)