XN000022-1986-10-20 — Page 2

MONDAY, OCTOBER 27, 1936

ORGANISATIONAL CHANGE FACILITATING FINANCIAL, BANKING SCENE

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THE RECENT REORGANISATION WITHIN THE ADMINISTRATION THAT BRINGS THE POLICY RESPONSIBILITIES FOR ALL ASPECTS OF THE FINANCIAL MARKETS UNDER ONE ROOF WILL GREATLY FACILITATE THE PROPER CO-ORDINATION OF THE GOVERNMENT'S ROLES IN THE DEVELOPMENT AND SUPERVISION OF THEM, THE FINANCIAL SECRETARY, MR PIERS JACOBS, SAID TODAY (MONDAY).

ADDRESSING THE BUSINESS FORUM LUNCHEON OF THE HONG KONG GENERAL CHAMBER OF COMMERCE AT THE FURAMA HOTEL, MR JACOBS SAID THE MONETARY AFFAIRS BRANCH NOW HAD POLICY RESPONSIBILITY FOR THE FINANCIAL SERVICES SECTOR GENERALLY THAT WAS FOR THE SECURITIES, COMMODITIES AND FUTURES MARKETS AND FOR THE INSURANCE INDUSTRY, IN ADDITION TO BANKING AND MONETARY ISSUES.

+ THE SECRETARY FOR MONETARY AFFAIRS NOW MONITORS ALL DEVELOPMENTS IN THE FINANCIAL MARKETS, PARTICULARLY IN NEW AREAS AND IN AREAS WHICH CUT ACROSS TRADITIONAL BOUNDARIES,+ HE SAID.

MR JACOBS SAID HE BELIEVED THAT THE ORGANISATIONAL CHANGE WAS A TIMELY RESPONSE TO THE CHANGES THAT WERE TAKING PLACE IN THE BANKING AND FINANCIAL SCENE.

THE FINANCIAL SECRETARY OUTLINED THE FOLLOWING OBSERVATIONS ON THE RECENT CHANGES:

* FIRST. JAPANESE BANKS WERE NOW AN EMERGING FORCE HERE

AND INTERNATIONALLY. JAPANESE BANKS NOW FORMED THE LARGEST FOREIGN BANK GROUP IN HONG KONG, WHICH ALSO SERVED AS A BASE FOR MANY OF THEIR REGIONAL ACTIVITIES-

* SECOND, WITH A STRONG DEPOSIT BASE, AND COMPETITIVE ADVANTAGE IN CHINA-RELATED BUSINESS, THE BANK OF CHINA GROUP NOW HAD

*

*

A MUCH MORE ACTIVE BUSINESS STRATEGY AND WAS RECOGNISED AS A MAJOR FORCE BY OTHER BANKS.

THIRD, BANKING IN HONG KONG CONTINUED TO BE INTENSELY COMPETITIVE. SOME 75 PER CENT OF THE TOP 100 BANKS IN THE WORLD WERE ALREADY IN HONG KONG. AND ALTHOUGH WE ALREADY HAD 151 LICENSED BANKS, THERE SEEMED TO BE NO LACK OF INTEREST SHOWN ON THE PART OF POTENTIAL NEWCOMERS.

LASTLY, AND ON A BROADER NOTE, NEW MARKET PRACTICES WERE EVOLVING RAPIDLY IN HONG KONG, FOLLOWING INTERNATIONAL TRENDS. BANK LOANS WERE NOW NOT THE ONLY MEANS OF BORROWING MANY LARGE CORPORATIONS RAISED FUNDS DIRECTLY FROM NON-BANK INSTITUTIONAL AND PRIVATE INVESTORS. CORPORATE CUSTOMERS MAINTAINED RELATIONSHIPS WITH A NUMBER OF SEPARATE BANKS. BANKS HAD THUS LOST MANY OF THEIR TRADITIONAL ADVANTAGES, BOTH IN TERMS OF THEIR ACCESS TO PROFITABLE BUSINESS AND IN THEIR ABILITY TO ASSESS CREDIT RISK, WHICH THEY ENJOYED WHEN THEY WERE THE SOLE SOURCE OF SHORT-TERM FINANCE FOR THEIR OWN EXCLUSIVE CUSTOMERS. BANKS HAD RESPONDED BY DIVERSIFYING THEIR OWN BUSINESSES AND THUS THE NATURE OF THE RISKS THEY ASSUMED. THE DIFFERENCES BETWEEN BANKS AND OTHER FINANCIAL INSTITUTIONS HAD BLURRED.

MANY

/MR JACOBS