ENG-2003 — Page 113

FINANCIAL AND MONETARY AFFAIRS

Financial Services in Hong Kong

Banking Sector

Main Features

Hong Kong maintains a three-tier system of deposit-taking institutions, namely, licensed banks, restricted licence banks and deposit-taking companies. They are collectively known as authorised institutions (AIs) under the Banking Ordinance. The Hong Kong Monetary Authority (HKMA) is the licensing authority for all three types of Als.

Only licensed banks may conduct full banking services, including in particular the provision of current and savings accounts and acceptance of deposits of any size and maturity. Restricted licence banks may take deposits of any maturity of $500,000 or above. Many deposit-taking companies are owned by, or otherwise associated with, licensed banks. Deposit-taking companies may take deposits of $100,000 or above with an original maturity of at least three months.

Hong Kong has one of the highest concentrations of banking institutions in the world. As at December 2003, there were 134 licensed banks, 42 restricted licence banks and 39 deposit-taking companies, which included operations of banks from 32 countries around the world. These 215 AIs maintained an extensive network of 1 308 local branches. In addition, there were 87 representative offices of overseas banks in Hong Kong. A local representative office is not allowed to engage in any banking business. Its role is confined to liaison work between the bank and its customers in Hong Kong.

The total deposit liabilities of all AIs to customers and the total loans and advances extended by these institutions at year-end were $3,566 billion and $2,035 billion, respectively. The total assets of all AIs amounted to $6,506 billion.

Hong Kong has a robust interbank payment system, which operates through the Real Time Gross Settlement (RTGS) system. The Hong Kong Dollar RTGS system has a single-tier settlement structure with all banks maintaining settlement accounts. with the HKMA. All RTGS payment transactions are settled in real time across the books of the HKMA. Intraday liquidity can be obtained by the banks through the use of their Exchange Fund Bills and Notes for intraday repurchase (repo) agreements with the HKMA.

Leveraging on the experience with the Hong Kong Dollar RTGS system, the HKMA introduced the US Dollar RTGS system in August 2000. The system allows participants to settle US dollar transactions real-time in the Asian time zone and thereby to reduce or eliminate foreign exchange settlement risk caused by any time. gap. Since its full implementation, the system has been operating smoothly and has attracted an increasing number of participants. As at December 2003, there were 67 direct participants and 160 indirect participants. Among the indirect participants, 113 were from overseas. Turnover of the system grew to 4 000 transactions per day with a total value of over US$4.9 billion.

With a view to further enhancing the financial infrastructure in Hong Kong, the HKMA launched a Euro RTGS system in April 2003. Similar to the technology used for the Hong Kong dollar and US dollar RTGS systems, the Euro RTGS system is built on the same infrastructure and offers a range of advanced and sophisticated clearing functions. The key functions include the real-time gross settlement for Euro

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