XN000022-1996-05-15 — Page 8

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The Report points out that due to uncertainty about interest rate movements and the prospect of a stronger US dollar, it is unlikely that returns in 1996 will match the excellent performance of the Fund in 1995.

On the banking side, performance in 1995 was better than originally expected, according to the Annual Report.

For the sector as a whole, pre-tax operating profits grew by 19.6 per cent, reversing a 1.1 per cent decline in 1994. This reflects improved operating efficiency and good asset quality of banks.

The capital adequacy ratio of locally incorporated institutions remained healthy at 17.5 per cent, well above the 8 per cent standard set by the Bank for International Settlements. The disclosure of banks' inner reserves in the 1995 accounts has helped to confirm their strong capital position.

In 1995, HKMA completed a major review of the legal framework for banking supervision.

With the enactment of the Banking (Amendment) Ordinance 1995 in June last year, the authority for the authorisation, suspension and revocation of all three types of authorised institution has been centralised in HKMA, which is in line with similar functions of central banks in other jurisdictions.

HKMA's interpretation of the authorisation criteria has been set out in a new Guide to Applicants.

On the development of market infrastructure, the interbank payment system was a priority area in 1995.

With the support of the banking community, HKMA completed the feasibility study and the system design for RTGS (real time gross settlement) and together with the Hong Kong Association of Banks (HKAB), established the Hong Kong Interbank Clearing Ltd during the year. This company will take over the clearing functions of the Management Bank of the Clearing House of HKAB during 1996.

The RTGS system will have close interface with the securities register system in the Central Moneymarkets Unit of HKMA to enable banking institutions to carry out intraday repurchase transactions on a real time delivery versus payment basis.

Efforts to develop the debt market continued in 1995 with the introduction of seven-year exchange fund notes and a detailed study on the secondary mortgage market laid the groundwork for the establishment of a government-backed mortgage corporation.