XN000022-1983-11-15 — Page 2

TUESDAY, NOVEMBER 15, 1983

GOVERNOR RETURNS TOMORROW

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THE GOVERNOR, SIR EDWARD YOUDE, WILL RETURN FROM PEKING TOMORROW (WEDNESDAY) AFTER ATTENDING ANOTHER TWO DAYS OF SINO- BRITISH TALKS ON THE FUTURE OF HONG KONG.

HE WILL BE TRAVELLING ON FLIGHT CA 103, ETA 1.55 PM.

A FACILITY HAS BEEN ARRANGED FOR PHOTOGRAPHERS AND CAMERAMEN TO COVER SIR EDWARD'S RETURN. MEDIA REPRESENTATIVES WISHING TO MAKE USE OF THE FACILITY SHOULD ASSEMBLE AT THE AIRPORT PRESS CONFERENCE ROOM NOT LATER THAN 12.45 PM. GIS OFFICERS WILL BE ON HAND TO ASSIST.

GOVERNMENT PLANS TO REVISE ROLE OF +LETTERS OF COMFORT+

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THE GOVERNMENT WILL PROPOSE CHANGES TO THE ROLE OF LETTERS OF COMFORT IN THE BANKING AND DEPOSIT-TAKING COMPANIES ORDINANCES AT THE COMMITTEE STAGE OF THE BANKING (AMENDMENT) BILL AND DEPOSIT- TAKING COMPANIES (AMENDMENT) BILL, IN THE LEGISLATIVE COUNCIL ON NOVEMBER 23.

LARGELY FOR HISTORICAL REASONS, THE COMMISSIONER OF BANKING AND DEPOSIT-TAKING COMPANIES HAS ACCEPTED LETTERS OF COMFORT, IN RESPECT OF A SUBSTANTIAL NUMBER OF DTCS AS WELL AS ONE OR TWO BANKS, AS A FORM OF GUARANTEE+ IN THE CONTEXT OF SECTION 23(1) (AA) OF THE BANKING ORDINANCE AND SECTION 22(1)(B) OF THE DTC ORDINANCE. THIS EFFECTIVELY PERMITTED THE RECIPIENT BANK OR DTC TO EXCEED THE LIMIT OF 25 PER CENT OF CAPITAL AND RESERVES THAT WOULD OTHERWISE APPLY TO LENDING TO A SINGLE CUSTOMER OR CUSTOMER GROUPING.

A GOVERNMENT SPOKESMAN EXPLAINED THAT SUCH LETTERS WERE ISSUED BY PARENT COMPANIES, MAINLY FOREIGN BANKS. THEY ACKNOWLEDGE THE SHAREHOLDING LINK AND AN ASSOCIATED MORAL RESPONSIBILITY FOR SUPPORT, BUT THEY FALL SHORT OF NECESSARILY BEING FORMAL, LEGALLY BINDING GUARANTEES.

AFTER A THOROUGH REVIEW OF THE ROLE PLAYED BY LETTERS OF COMFORT, THE FOLLOWING NEW ARRANGEMENTS ARE NOW BEING PROPOSED

(A)

(B)

(C)

ONLY LETTERS OF COMFORT FROM BANKS WILL IN FUTURE BE ACCEPTABLE,

A LETTER OF COMFORT WILL NO LONGER BE ACCEPTED AS A +FORM OF GUARANTEE+ IN THE CONTEXT DESCRIBED ABOVE,

HOWEVER, THE COMMISSIONER WILL BE EMPOWERED TO PERMIT LENDING TO A SINGLE CUSTOMER OR GROUPING IN EXCESS OF THE 25 PER CENT LIMIT IF HE IS IN POSSESSION OF A LETTER OF COMFORT THAT CONFORMS TO THE FOLLOWING REQUIREMENTS:

/(I) IT