TNAG-1487-FCO40-2044-Hong-Kong-banking-Banking-Bill-1986-1986 — Page 177

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persons in fact all depend on the creditworthiness of a single party. Since it is difficult to describe such circumstances in precise legal language, the route taken in the Bill was for the Commissioner to issue

appropriate directions to the institutions to regulate these types of exposures. It is however now considered that since the breach of these directions would attract criminal sanction, this would vest too much power in the Commissioner. I will therefore be moving an amendment to the effect that the Commissioner may issue guidelines on the subject of exposure to a single party. An institution will not be specifically sanctioned for violation of these guidelines, but such violation will be taken into account in the supervisory authorities' administration of other provisions of the Bill.

Clause 81: Lending to single parties

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The very important clause 81 is related to clause 82. It sets a prudential limit 25% of capital and reserves on an institution's lending, guarantees or incurring of other liabilities to any one person and others closely associated with him as defined in that clause. But the concept of exposure to a single party is broader than just that of being a lender or guarantor: it includes the holding of debt securities and shares issued by that party. The original intention was to introduce this broader concept through one of the Commissioner's directions under clause 82. As a result of the amendment to clause 82 I just mentioned, it is considered that the 25% limit in clause 81 should also include debentures and shares issued by the borrower. will be moving an amendment to this effect.

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