XN000022-1986-03-19 — Page 46

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WYDNESDAY, MARCH 19, 1986

SECONDLY, AFTER COMMENCEMENT, ALL APPOINTMENTS TO DIRECTOR AND COMPANY SECRETARY POSTS OF A LOCAL INSTITUTION WOULD BE SUBJECT TO THE COMMISSIONER'S PRIOR APPROVAL.

SIR JOHN SAID THE COMMISSIONER'S CONTROL ALSO EXTENDED TO THE +CONTROLLER+ - DEFINED AS ONE WHO CONTROLLED MORE THAN 50 PER CENT OF THE VOTING SHARES OF THAT INSTITUTION OR OF ITS HOLDING COMPANY.

RELATING TO THE RESTRICTION ON LOANS, HE SAID THE BILL PROVIDED THAT THE COMMISSIONER MIGHT ISSUE DIRECTIONS TO AUTHORISED INSTITUTIONS NOT TO ENGAGE IN SPECIFIE BUSINESS PRACTICES WHICH, IN HIS OPINION, MIGHT CAUSE THE SOUNDNESS OF THE FINANCIAL POSITION OF AN AUTHORISED INSTITUTION TO BE DEPENDENT UPON THE SOUNDNESS OF THE FINANCIAL POSITION OF A SINGLE PARTY.

THE BILL ALSO REQUIRED THAT AN INSTITUTION SHOULD NOT, EXCEPT WITH THE COMMISSIONER'S APPROVAL, GIVE CREDIT AGAINST THE SECURITY OF THE SHARES OF ITS RELATED COMPANIES THAT IS, ANY SUBSIDIARY OF THAT INSTITUTION, THE HOLDING COMPANY OF THAT INSTITUTION, OR ANY SUBSIDIARY OF SUCH HOLDING COMPANY.

SUCH MEASURES WOULD COVER BOTH BANKS AND DTCS INCORPORATED IN HONG KONG AND OTHER FOREIGN COMPANIES, SIR JOHN SAID.

ON THE QUESTION OF CAPITAL TO RISK ASSETS RATIO, SIR JOHN SAID ONE OBVIOUS COMMON FEATURE OF THE BANKS THAT HAD HAD TO BE TAKEN OVER BY GOVERNMENT WAS INSOLVENCY.

+ IN OTHER WORDS, THE IR CAPITAL AND RESERVES WERE GROSSLY INADEQUATE TO MEET THE LOSSES ARISING FROM BAD DEBTS.+

IN VIEW OF THIS, SIR JOHN SAID, THE BILL INTRODUCED A NEW RATIOO THE CAPITAL TO RISK ASSETS RATIO, TO APPLY TO ALL BANKS AND DEPOSIT-TAXING COMPANIES INCORPORATED IN HONG KONG.

HE SAID THE CONCEPT OF A CAPITAL TO RISK ASSETS RATIO WAS WIDELY ACCEPTED INTERNATIONALLY, BUT THERE WAS NO UNIFORM STANDARD.

+THE BILL SETS A MINIMUM RATIO OF FIVE PER CENT, BUT THE COMMISSIONER HAS THE POWER TO INCREASE THE RATIO FOR PARTICULAR INSTITUTIONS TO NOT MORE THAN EIGHT PER CENT IN THE CASE OF BANKS, AND 10 PER CENT IN THE CASE OF DEPOSIT-TAKING COMPANIES.

+THIS DISCRETIONARY REQUIREMENT IS TO PROVIDE FLEXIBILITY DUE TO SUCH DIFFERENCES AS THE QUALITY AND NATURE OF INDIVIDUAL

INSTITUTION'S ASSET PORTFOLIOS,+ SIR JOHN SAID.

SINCE THE CAPITAL TO RISK ASSETS RATIO WAS NEW, AND WOULD PLACE SUBSTANTIAL REQUIREMENT ON SOME OF THE INSTITUTIONS CONCERNED, HE ENVISAGED THAT A REASONABLY LONG PERIOD OF ABOUT TWO YEARS WOULD BE ALLOWED BEFORE BRINGING IT INTO EFFECT.

/ON THE