ENG-1995 — Page 100

FINANCIAL AND MONETARY AFFAIRS

enacted on June 28, 1995, the HKMA was established as the licensing authority for all three types of authorised institutions.

The authorisation criteria for locally-incorporated applicants and overseas applicants for a banking licence are broadly the same. However, a local applicant incorporated in Hong Kong must be predominantly beneficially owned by Hong Kong interests, or, in the opinion of the HKMA, be otherwise closely associated and identified with Hong Kong. A local applicant must also 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 for assets (net of contra items) and public deposits are $4,000 million and $3,000 million, respectively. For banks incorporated outside Hong Kong, applying to establish a branch in the territory, this figure is US$16 billion. A licence may still be granted even if the asset-test is not met, provided that the HKMA believes that this would help promote the interests of Hong Kong as an international financial centre.

Hong Kong imposes no major barriers on overseas banks operating domestically in the territory, whether in Hong Kong dollars or other currencies. However, over- seas banks licensed since 1978 are effectively restricted to one branch, a measure designed to avoid overcrowding in retail banking. 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. This was done to help foreign banks reduce their operating costs by letting them move some of their operations to areas with lower rentals. The relaxation also applies to foreign restricted-licence banks.

Hong Kong had 185 licensed banks at the end of December 1995, of which 31 were locally incorporated. They maintained a total of 1 649 offices in the territory and there were 157 representative offices of foreign banks. The total deposit liabilities of all the licensed banks to customers at the end of December 1995 were $2,152 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 (to which, under their licensing conditions, all licensed banks must belong) set 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.

Applicants for restricted bank licences must have a minimum issued and paid- up capital of $100 million. Restricted-licence banks may take call, notice and time deposits of any maturity from the public, but in amounts of not less than $500,000. There are no restrictions on the interest rates they may offer. At the end of December 1995, there were 63 restricted-licence banks and their total deposit liabilities to customers at the end of December 1995 were $38 billion.

Restricted-licence banks may use the word 'bank' in describing their business in promotional literature and advertisements, but this must be qualified by descrip- tion such as 'restricted-licence', 'merchant', 'investment' or 'wholesale'. To avoid confusion with licensed banks, descriptions such as 'retail' or 'commercial' are not allowed. Overseas banks seeking authorisation as restricted-licence banks may operate in branch or subsidiary form. If in branch form, they may use their registered

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