ENG-1994 — Page 103

FINANCIAL AND MONETARY AFFAIRS

Financial Institutions

licensed banks,

Hong Kong maintains a three-tier system of deposit-taking institutions restricted licence banks and deposit-taking companies, which are collectively called authorised institutions.

While banking licences and restricted banking licences are granted at the discretion of the Governor in Council and the Financial Secretary, respectively, the authority to register deposit-taking companies rests with the HKMA.

There are different sets of authorisation criteria for locally-incorporated applicants and overseas applicants for a banking licence. A local applicant incorporated in Hong Kong should satisfy the criterion that it is predominantly beneficially owned by Hong Kong interests, or, in the opinion of the Governor in Council, is otherwise closely associated and identified with Hong Kong. The local applicant is also required to have a paid-up capital of at least $150 million and a minimum trading period of 10 years as an authorised institution. The minimum requirements on assets (net of contra items) and public deposits are $4,000 million and $3,000 million, respectively.

In the case of a bank incorporated outside Hong Kong applying to establish a branch in the territory, the asset size requirement (net of contra items) is US$16,000 million. A licence may still be granted in exceptional circumstances, however, if the bank is of exceptionally high standing or if banks from its country of incorporation are under-represented in the territory. Hong Kong poses no major barriers to overseas banks operating domestically in the territory, whether in Hong Kong dollars or other currencies. However, overseas banks licensed after 1978 are subject to a condition which effectively restricts them to one branch, a measure designed to avoid overcrowding in retail banking. Even this restriction was relaxed in September 1994, and foreign banks are now allowed to open one regional office and one back office, in separate buildings, to conduct such activities as strategic planning, general liaison with correspondent banks and corporate entities, and processing and settlement of transactions already entered into by the branch office. The purpose of the relaxation is to help foreign banks reduce their operating costs by allowing them to move some of their operations to areas where rentals are less expensive. The relaxation also applies to foreign restricted licence banks.

At the end of 1994, there were 180 licensed banks in Hong Kong, 32 of which were locally incorporated. They maintained a total of 1 464 offices in Hong Kong. In addition, there were 157 representative offices of foreign banks. The total deposit liabilities of all the licensed banks to customers at the end of the year was $1,884 billion.

Only licensed banks may operate current or savings accounts. They may also accept deposits of any size and any maturity from the public. The Interest Rate Rules of the Hong Kong Association of Banks (of which all licensed banks are required, under their licensing conditions, to be members) result in the setting of maximum rates payable on bank deposits in Hong Kong dollars of original maturities of less than 15 months, with the exception of deposits of $500,000 or above, for which banks may compete freely.

The Interest Rate Rules were partially lifted on October 1, when the Hong Kong Association of Banks removed the interest rate cap on Hong Kong dollar deposits fixed for more than one month. This was the first step in a phased programme that would, by April 1, 1995, deregulate interest rates on all deposits fixed for more than 24 hours representing 95 per cent of existing time deposits governed by the Interest Rate Rules. As for 24-hour call

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