TNAG-1267-FCO40-1616-Economic-situation-in-Hong-Kong-1983 — Page 394

Mr Donald

PERSONAL AND CONFIDENTIAL

HKK0904 RECEIVED IN REGISTRY NO. 51 - 6 JUN 1983

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DESK OF CER

INDEX

REGISTRY

Action Taken

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Fite

PA

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HONG KONG

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ICAC AND THE FINANCIAL SECTOR

5

1.

The Governor described to me briefly the current emphasis being placed in ICAC on examination of corruption in banks, deposit- taking companies and other financial institutions. He said that, during the boom period of property prices, there had been enormous risks taken with depositors' money and a number of prosecutions were likely. We must also expect bankruptcies by some smaller banks and deposit-taking companies. By far the most serious was the likelihood that the Hang Lung Bank, which had been rescued by the Hong Kong and Chartered Bank earlier this year, would have to meet a claim for a further HK$600 million which would beyond its resources. Support by the commercial banks would not then be possible. The Hong Kong Government would be obliged to ''nationalise' the Hang Lung in order to avoid a confidence-shaking collapse. This would be done by financial support and the appointment of a team of commercial bankers to run the organisation. We could expect this to take place in the near future, possibly by the middle of June. The Governor believed that, provided the Hong Kong Government acted with determination, confidence would survive the inevitable publicity which would surround the collapse of a number of institutions. I think this is right. The Hong Kong press has of course been reporting financial difficulties in a number of areas for some time and the public is probably prepared for it. It will be interesting to see the reaction to the Government's support for the Hang Lung Bank; in my view the Governor has no alternative.

Dup

R D Clift

1 June 1983

Hong Kong Department

PERSONAL AND CONFIDENTIAL