ENG-1997 — Page 111

FINANCIAL AND MONETARY AFFAIRS

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 billion and $3 billion, respectively. For banks incorporated outside Hong Kong applying to establish a branch in Hong Kong, the minimum requirement for total assets 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 to promote the interests of Hong Kong as an international financial centre.

Hong Kong imposes no major barriers on overseas banks operating domestically in Hong Kong, whether in Hong Kong dollars or other currencies. However, overseas 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 may open one regional office and a 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 operations to areas with lower rentals. The relaxation also applies to foreign restricted licence banks.

Hong Kong had 180 licensed banks at the end of December 1997, of which 31 were locally incorporated. They maintained a total of 1 691 offices in Hong Kong and there were 159 representative offices of foreign banks. The total deposit liabilities of all the licensed banks to customers at the end of December 1997 were $2,599 billion.

Only licensed banks may operate current or savings accounts. They may also accept deposits of any size and any maturity from the public. All licensed banks must belong to the Hong Kong Association of Banks (HKAB). The HKAB's Interest Rate Rules set maximum rates payable on Hong Kong dollar savings deposits and time deposits with original maturities of less than seven days, 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. There were 66 restricted licence banks at the end of December 1997 with total deposit liabilities to customers of $51.9 billion.

Restricted licence banks may use the word 'bank' in describing their business in promotional literature and advertisements, but this must be qualified by a description 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 name even if it includes the word 'bank' or a derivative, but in this case it must be qualified prominently by the words 'restricted licence bank' in immediate conjunction.

Besides the criteria which apply to other authorised institutions, registration of deposit-taking companies will generally be granted only to companies that are 50 per cent or more owned by a bank (or exceptionally, by another fully supervised financial institution). Deposit-taking companies are required to have a minimum paid-up capital of $25 million. They are restricted to taking deposits of not less than $100,000,

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