ENG-1981 — Page 79

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FINANCIAL SYSTEM AND ECONOMY

banking licence: it must have a paid-up share capital of at least $100 million; it must have been in the business of taking deposits from and granting credit to the public for at least 10 years; and it must hold deposits from the public of at least $1,500 million and total assets of at least $2,000 million (these minima will be reviewed annually).

Non-bank financial institutions which take deposits from the public but do not conduct banking business (as defined in the Banking Ordinance) are required to be either licensed or registered under the Deposit-taking Companies Ordinance. Licensed status, which is granted by the Financial Secretary, is reserved for larger companies which have a minimum issued share capital of $100 million and paid-up capital of $75 million, and which meet certain partially subjective criteria such as size, ownership and quality of management. Access to registered deposit-taking company status in the register maintained by the Commissioner of Deposit-taking Companies has since April 1981 been restricted to companies which, as well as meeting certain basic criteria, are more than 50 per cent owned by banks in Hong Kong or elsewhere (before that time there was no such restriction on ownership). The minimum paid-up capital required by an applicant for registration as a deposit-taking company was raised in July 1981 from $2.5 million to $10 million. At the end of 1981, there were 350 registered deposit-taking companies. No company had yet been granted the status of a licensed deposit-taking company.

In addition to the amendments required to create the status of a licensed deposit-taking company, further amendments were made to the Banking and Deposit-taking Companies Ordinances in 1981 in order to strengthen the quality of prudential supervision applied to deposit-taking institutions, and to keep the provisions of the two ordinances up-to-date.

Work was also undertaken during the year on the preparation of further legislative amendments to take account of the growing volume of activities outside Hong Kong of banks and deposit-taking companies incorporated in Hong Kong, and to enable the Commissioner of Banking (who is also the Commissioner of Deposit-taking Companies) to play his full part in the increasingly important international network of banking supervisors.

Two other important developments took place in the monetary sector in 1981. In January, The Hong Kong Association of Banks to which all licensed banks are obliged to belong was formed as a statutory body to replace the former Exchange Banks Association. One of the most important functions of the association is to operate (in consultation with the government) the interest rate agreement, which sets out the maximum rate of interest which may be paid by a licensed bank on certain deposits. In the absence of government debt and other conventional instruments of monetary policy, the deposit rates set under the interest rate agreement play a very important part in the monetary scene.

Following on the enactment in 1980 of the Monetary Statistics Ordinance, the govern- ment began to publish a new series of detailed statistics compiled from monthly returns submitted by banks and deposit-taking companies to the Secretary for Monetary Affairs of the Government Secretariat since December 1980. As the series matures these statistics will be of growing value in understanding the increasingly complex monetary sector in Hong Kong.

Non-bank Financial Services

Banks and deposit-taking companies in Hong Kong offer a wide range of facilities and services to their customers, so there is a relatively restricted range of other kinds of institutions in the Hong Kong financial sector. The range includes insurance companies and pension funds, as well as credit unions, co-operative societies, pawnshops and private