TNAG-1267-FCO40-1616-Economic-situation-in-Hong-Kong-1983 — Page 388

CONFIDENTIAL

GPS...2800

CONFIDENTIAL

FM HONG KONG 040955Z MAR 83

TO ROUTINE BRUSSELS

TELEGRAM NUMBER 009 OF 4 MARCH 1983

AND TO GENEVA AND WASHINGTON

MMF 393/5. Reg многое

Please copy

to

ESDIERS.

I'm sive ESID and ERD be glad of

4/7/3

a

could

3

sidicap

MKK09014

FOR HONG KONG GOVERNMENT REPRESENTATIVES

RECEIVED IN RUSS

No. 512. IPA

HKG/GT/12

THE FINANCIAL SECTOR

14 JUN 1983

HK hour

RY

DES

BACKGROUND

T'ken1

INDEX

(nor banking)

THE FINANCIAL SECTOR OF HONG KONG HAS BEEN IN AN UNSETTLED

STATE IN RECENT MONTHS. A HANDFUL OF REGISTERED DEPOSIT-TAKING

COMPANIES HAVE EXPRIENCED LIQUIDITY PROBLEMS AND AS OF END- FEBRUARY, 7 REGISTRATIONS HAVE BEEN REVOKED BY THE COMMISSIONER OF DEPOSIT-TAKING COMPANIES. THIS, AND THE FACT THAT SOME MEMBERS

OF THE PUBLIC HAVE BEEN DENIED THEIR DEPOSITS AND THAT IN A NUMBER

OF CASES THERE WAS SUSPICION OF FRAUDULENT PRACTICE, HAS AROUSED

. CONSIDERABLE PUBLIC CONCERN, PARTICULARLY IN FINANCIAL CIRCLES.

(A) EXTENT OF THE PROBLEM

2. TO PUT THE PROBLEMS IN PERSPECTIVE, THE FINANCIAL SECTOR,

DEFINING IT TO INCLUDE ALL DEPOSIT-TAKING INSTITUTIONS IN OPERATION,

INCLUDED 128 LICENSED BANKS, 18 LICENSED DEPOSIT-TAKING COMPANIES

AND 343 REGISTERED DEPOSIT-TAKING COMPANIES AT THE END OF DECEMBER

1982. THESE GROUPS CONSTITUTE WHAT IS NOW KNOWN AS THE 3-TIER

STRUCTURE OF THE FINANCIAL SECTOR. DIFFICULTIES HAVE BEEN EXPER-

IENCED ONLY IN INSTITUTIONS IN THE LOWER TIER. AT THE END OF

DECEMBER 1982, THE 7 REGISTERED DEPOSIT-TAKING COMPANIES WHICH SUBSEQUENTLY HAD THEIR REGISTRATIONS REVOKED ACCOUNTED FOR ABOUT

0.83 PER CENT OF CUSTOMERS' DEPOSITS WITH ALL REGISTERED DEPOSIT-

TAKING COMPANIES AND 0.12 PER CENT OF THOSE WITH ALL DEPOSIT-TAKING

INSTITUTIONS.

(B) CAUSES

3. IT IS NOT POSSIBLE TO IDENTIFY CLEARLY A COMMON CAUSE OF

THE DIFFICULTIES ENCOUNTERED. ONE MAJOR FACTOR IS BELIEVED TO BE

THE FAIRLY SHARP DOWNWARD ADJUSTMENT IN PROPERTY PRICES. THUS,

REGISTERED DEPOSIT-TAKING COMPANIES WHICH HAVE OVER EXTENDED LOANS

TO FINANCE PROPERTY DEVELOPMENT WERE FACED WITH A SHARP DEPLETION

OF THEIR ASSETS. THIS IN TURN LED TO OTHER FINANCIAL INSTITUTIONS WITHDRAWING THEIR CREDIT LINES, CREATING THEREFORE A LIQUIDITY

SQUEEZE. THERE HAVE BEEN CLAIMS THAT 'THE DIFFICULTIES EXPERIENCED

BY THESE REGISTERED DEPOSIT-TAKING COMPANIES RESULTED FROM THE

REQUIREMENT UNDER THE 3-TIER SYSTEM INTRODUCED IN 1981 THAT THEY

MUST RUN DOWN ALL THEIR SHORT-TERM DEPOSITS IN TWO STAGES BY THE

END OF JUNE 1983. ALTHOUGH IT IS NOT POSSIBLE ENTIRELY TO DISPEL

CONFIDENTIAL

/SUCH