TNAG-1487-FCO40-2044-Hong-Kong-banking-Banking-Bill-1986-1986 — Page 15

GRS 280

CONFIDENTIAL

FM HONG KONG

TO PRIOR-FTY FCO

TELNO 2931

OF 1OO74OZ SEPTEMBER 86

CONFIDENTIAL

FOR HONG KONG DEPARTMENT

PLEASE PASS TO SAR EDWARD YOUDE

HONG MIN BANK

HRK102|1

TOR

RECEIVE

15 SEP 1986

TOS

Q DIST

AJB 199!

INCORPORATED BANK WITH FOUR

THE HONG NN BANK 4S A SMALL LOCALLY BRANCHES. DEPOSITS FROM ABOUT 9,000 CUSTOMERS TOTAL JUST BELOW HKD300 MILLION. #I'N ADDITION, IT WAS BORROWED FROM BANKS AND DEPOSIT-TAKING COMPANIES A NET HKD110 MILLION. ACCOUNTS OF THE BANK FOR THE END OF 1995 SHOW A NET WORTH OF HKD133 MILLION, WHICH IS HIGHER THAN THE MINIMUM CAPITAL REQUIREMENT OF HKD100 MILLION LAND DOWN IN THE BAKING ORDINANCE.

2. THE BANK, HOWEVER, HS HEAVILY EXPOSED TO SIR KENNETH FUNG'S GROUP OF COMPANIES, TO THE TUNE OF HKD160 MILLION. THE MAJORITY OF THESE LOANS HAVE BAD SECURITY OR ARE EXTENDED AGAINST PERSONAL GUARANTEES FROM SIR KENNETH. INCREASING DOUBTS ON THE ABILITY OF THE FUNG GROUP TO SERVICE AND REPAY DEBTS TOTALLING IN EXCESS OF HKD400 MILLION HAVE AFFECTED THE LIQUIDITY POSITION OF HONG MIN BANK. IF PROVISIONS ARE TO BE MADE FOR THE UNSECURED PART OF THE LOANS TO THE FUNG GROUP, THEY WOULD VIRTUALLY WIPE OUT THE BANK'S CAPITAL.

3. THE COMMISSIONER OF BANKING, AFTER CONSULATION WITH THE FINANCIPAL BECRETARY OVER THE WEEKEND, EXERCISED HIS POWERS UNDER

SECTION 52(1)(C) OF THE BANKING ORDINANCE AND ASSUMED CONTROL OF THE BANK ON MONDAY 8 SEPTEMBER WITH MANAGEMENT HELP FROM THE STANDARD CHARTERED BANK. THE FINANCIAL SECRETARY ALSO USED THE EXCHANGE FUND, PURSUANT TO SECTION 3(1) OF THE EXCHANGE FUND ORDINANCE, TO MAKE AVAILABLE A LINE OF CREDIT TO ENABLE THE BANK TO MEET ITS OBLIGATIONS IN FULL ON TIME.

4. THE BANK OPENED FOR BUSINESS AS USUAL ON MONDAY. SO FAR THE EXCHANGE FUND HAS MADE AVAILABLE A TOTAL OF ABOUT HKD95 MILLION TO THE BANK MOSTLY TO MEET DEMANDS FOR REPAYMENT OF INTERBANK COMMITMENTS. SMALL DEPOSITORS, HOWEVER, ARE STAYING PUT. MEANWHILE FIRST PACIFIC HOLDINGS, WHO HAD INTENDED TO ACQUIRE THE BANK, ARE RECONSIDERING THEIR POSITION. JUDGING FROM PRESS COMMENTS AND CONTACTS WITH BANKING AND BUSINESS CIRCLES, THE CHANCES OF A COMPLETE RESTRUCTURING OF THE FUNG GROUP ARE SLIM. BUT ABOUT HALF OF THEIR TOTAL LIABILITIES MAY BE RECOVERED. WRITS ARE ALREADY FLYING AROUND. IT SEEMS THAT THE BANK OF EAST ASIA‚· WITH WHOM SIR KENNETH HAS A CLOSE RELATIONSHIP, IS UNLIKELY TO COME TO SIR KENNTHS RESCUE.

CONFIDENTIAL

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