HONG KONG: THE
FACTS
AUGUST 1991
Annex E
BANKING
Hong Kong is one of the world's major financial centres. This position is made possible by its open economy, freedom of capital movement, a sound and well understood legal framework, efficient human and physical infrastructures, wide use of English, and a strategic geographic location in an economically dynamic part of the world.
Banking is the lynchpin of financial activities. The growth of international trade through Hong Kong, notably from and to China, has been a key factor in the growth of Hong Kong's own banks, and in attracting many international banks to it to establish operations.
Hong Kong provides a broad range of banking services to local and overseas customers. The finance of trade and investment particularly of China and of the South East Asia region is a major activity. With a population of 5.8 million, domestic banking is also an important market segment, with banks extending consumer finance including assisting individuals to buy their dwellings.
With a relatively open market to foreign banks and with no restrictions on transacting business with re- sidents in either domestic or foreign currency, Hong Kong has developed over the past 15 years into a key foreign exchange trading market. It occupies, along with Tokyo and Singapore, a slot at the start of the global business day. This enables banks, in conjunction with their affiliated offices in London and New York, to trade throughout the 24 hours. As in April 1989, the average daily turnover of the local foreign exchange market amounted to US$50 billion approximately.
Private banking is also an important sector. The secure legal foundation, and the diversity of investment services available, makes the centre an attractive place for high net worth individuals to place their funds.
Three-tier System: Since 1981 Hong Kong has maintained a three-tier system of deposit-taking institutions, namely, licensed banks, licensed deposit- taking companies and registered deposit-taking companies, collectively known as authorised institu- tions. Following legislation in January 1990, the categories of licensed and registered deposit-taking company have been replaced by restricted licence bank and deposit-taking company respectively. The changes were primarily designed to improve the status of licensed deposit-taking companies, by giving them limited freedom to describe themselves as banks and to permit sound overseas banks and financial institutions to branch into Hong Kong as restricted licence banks, even though they were not large enough to qualify for a full banking licence.
Licensed banks include banks incorporated both in Hong Kong and overseas. Only licensed banks may operate current and savings accounts, and accept deposits of any size and maturity. Interest rates paid to depositors on Hong Kong dollar deposits up to $500,000 and up to a maturity of 15 months are
governed by the rules of the Hong Kong Association of Banks of which all banks must be members.
Restricted licence banks are principally engaged in merchant banking and capital market activities, two of the core elements of Hong Kong's wholesale financial markets. They may take deposits of any maturity of $500,000 or more.
Deposit-taking companies are mostly owned by or otherwise associated with banks. These companies are restricted to taking deposits of $100,000 or more with an original term to maturity of at least three months. Many of them are relatively small institutions.
Bank notes are issued by two commercial banks- The Hongkong and Shanghai Banking Corporation Limited and The Standard Chartered Bank Limited (the banks are obliged to deposit, at nil rate of interest, the US dollar counterpart with the Hong Kong Government's Exchange Fund). Coinage is issued by the Hong Kong Government.
The industry: As at 30 June 1991, there were 383 licensed banks, restricted licence banks and deposit-taking companies. They operated a compre- hensive local branch network; the locally incorporated institutions also had significant presence overseas, as reflected in the following statistics:
Licensed banks
overseas
overseas representative branches
offices
main local offices branches
incorporated in HK incorporated
30
955
172
19
overseas
136
451
166
1 406
172
19
Restricted licence
banks
50
11
3
8
Deposit-taking
companies
167
63
5
3
Of the overseas banks, representing 28 countries, the majority came from the world's 500 largest banks. In addition, 145 overseas banks from 35 countries had representative offices in Hong Kong.
The banking sector's balance sheet (that is the pos- ition of the banks and the deposit-taking companies) at the end of 1990 showed that total assets and deposits in Hong Kong stood at $5,234 billion and $1,231 billion respectively. Gross inter-bank claims amounted to $3,034 billion. More than 80% of these inter-bank transactions were with banks abroad, reflecting Hong Kong's strong link with the global banking system.
Clearing systems: A Clearing House, of which all licensed banks are members, clears some 392 000 items denominated in Hong Kong dollars daily in the Paper (Cheque) Clearing System. In addition, there are the Electronic Clearing System, and the Clearing
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