CONFIDENTIAL
LINE TO TAKE
15. IT IS IMPORTANT TO SEE RECENT DEVELOPMENTS IN PERSPECTIVE. RECENT PROBLEMS HAVE BEEN LIMITED TO ONLY A SMALL PROPORTION OF INSTITUTIONS IN THE LOWER TIER OF THE FINANCIAL SECTOR. THEY INVOLVE A RATHER INSIGNIFICANT PROPORTION OF THE TOTAL DEPOSIT BASE.
16. THE THREE-TIER SYSTEM SHOULD NOT BE BLAMED FOR THE RECENT PROBLEMS, MOST OF WHICH DERIVED INITIALLY FROM INJUDICIOUS LENDING RATHER THAN FROM THE RUNDOWN OF SHORT-TERM CUSTOMER DEPOSITS. MOREOVER, HAD THE THREE-TIER SYSTEM NOT BEEN INTRODUCED, THE INTEREST RATE AGREEMENT MIGHT HAVE BEEN ABANDONED, LEADING TO CUT THROAT COMPETITION AND UNCERTAIN CONSEQUENCES ESPECIALLY FOR THE SMALLER FINANCIAL INSTITUTIONS.
17. THE FINANCIAL SECTOR IS STILL UNDERGOING A TRANSITIONAL PERIOD OF STRUCTURAL CHANGES. IT IS UNFORTUNATE THAT THIS FINAL PHASE OF ADJUSTMENT COINCIDED WITH A SHARP SLOWDOWN IN THE GROWTH RATE OF THE ECONOMY AND A SHARP DOWNWARD ADJUSTMENT IN PROPERTY PRICES. IT SHOULD BE EMPHASISED THAT WHEN THE DUST HAS SETTLED, THERE WILL BE A SOUNDER FINANCIAL SYSTEM WHICH WILL OFFER BETTER PROTECTION FOR DEPOSITORS.
YOUDE
MINIMAL
HK+GD
THIS TELEGRAM WAS NOT 'ADVANCED
CONFIDENTIAL