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.
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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
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