Asset control:
For both deposit-taking companies and banks, there is a miximum lending limit to any one customer of 25% of paid up capital and reserves. The restriction applies not only to loans and advances, but also includes other credit risks such an letters of credit and financiai guarantees. All such facilities are aggregated for the purpose of the limitation to any one customer. In the case of a bank or deposit-taking company. Incorporated outside Hong Kong, the limit is. measured againat the petd up: capital and reserves of the Head Office in the country of Incorporation. There is no attempt to determine. nominal capital for the branches' in Hong Kong, as is the case in certain countries which operate exchange control and require foreign companies to bring in capital funds, There are several exceptions to the above rule. The most important is the exclusion of transactions to the extent to which they are covered by an acceptable form of guarantee, e.g. a bank guarantee of a stand-by letter of credit; In certain circumstances, comfort latters are also acceptable.
Unsecured loans to directors of banks and deposit-taking comapnies, th
their relatives and related companies, are restricted to 25% of the pald up capital and reserves of the bank or deposit-taking company. In addition to this eggregate limit, there is a much smaller limit of 1% or $250,000, whichever: Is the: lower, which applies to the aggregate unsecured facilities to each director and his relatives and any private company, or other business, which he or a relative is able to control.
The book value of shares held by banks Is limited to 25% of paid up capital and reserves, and there is a similar limit in respect of real estate not used for banking purposes. The object of the restrictions is to prevent banks from using depoatkorw funds to speculate in the stock and property markets. With regard to shareholdinge, there is some ascope for exemption In.respect of shares in another bank or subeidiary company.
respect
In addition to the above two-restrictions, there are aggregatu limits on certain classes of asset hold by a bank. Whereas unsecured tending to directors, their relatives and related companies, shareholdings and real estate: not used for banking purposes, are subject to individual limits as described: above of 25% of paid up capital and reserves, the aggregate of all three such classes is itself subject to an over-riding limit of 56%, If, on top of that, account is taken of real estate used for banking purposes, the limit of 55% Is extended to 80%,
Role of Commissioner
The statutory office of Commissioner of Banking was created in 1964 by the Banking Ordinance and in. 1976 the Commissioner also became responsible for registering deposit-taking companies. In 1978, his prudential role, which so far had related only to licensed banks, was extended to include deposit-taking companies and he was appointed Commissioner of Deposit-taking Companies under the Deposit-taking Companies of
Ordinance,
"The system of prudential. supervleton Is based upon a confidential monthly return which is submitted by aach bank and deposit-taking company. It is a comprehensive return of the assets and lablilties of Its offices and branches In Hong Kong at the end of each month, and of Its liquid assets at the close of business on each Wednesday. The monthly returns are carefully examined' in our office and, for this purpose, we maintain a register for each Institution from which we watch ratios and trands and ask questions where appropritat. Our main: concern is to see that the bank or deposit-taking company is acting prudently within the code of behaviour laid down:In the law, In addition, we regularly visit each bank to carry. out routine examinations and have recently started to visit deposit-taking companies,
Extension of supervisory role
There are several areas where I think the statutory powers of the Commissioner could usefully be strengthened and proposals along these tines are now being studies. They include the ability to go beyond the Hong Kong operations of the: benka or deposit-aking companies themselves. am referring specifically to the activities of the overseas branches of
· tocally Incorporated banks and deposit-taking companies, and also to the activities of their subsidiary' and associated companies whether located in Hong Kong or overseas,
It Is now. generally.
Internationally that the primary responsibility for the supervision of the ovETEDES. branches of a deposit-taking Institution rests with the appropriate authorities in its home country, on the ground that the assets and ilmblilties of a branch are not legally distinguishable from the assets and liabilities of the Institution as a wholeź This understanding is shared by most supervisory authorities, notably those countries represented on the Committee of Banking Regulations and Supervisory Practices meeting under the suspices of the Bank for International Settlements. } think it is important In this regard that Hong Kong is seen to be playing its role internationally in the supervision of the activities of the overseas branches of its own deposit-taking Institutions,
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