Hong Kong Monetary Authority Executive Outlines Way Forward For Banking Sector

by Mary Swire, Tax-news.com, Hong Kong

16 April 2001

Changes are afoot in Hong Kong's banking industry, and deputy chief executive of the Hong Kong Monetary Authority (HKMA), David Carse, seized upon the opportunity to discuss the way forward for banking sector reform in the SAR at an America Chamber of Commerce function last week.

Mr Carse spoke of the current trends in Hong Kong banking and outlined how the HKMA is reacting to them by pushing through a number of reforms. He said the aim of the reforms is to both promote efficiency and innovation in the banking sector through removing barriers to competition and to ensure that the the banking systems remains sound whilst providing adequate protection for depositors.

Mr Carse said: 'The Hong Kong banking system is going through a period of unprecedented change. This is being driven by shifts in the competitive environment and by changes in the regulatory structure. I would stress that Hong Kong is not alone in this - what we are witnessing here is similar to the trends in other major banking systems around the world. Perhaps the changes have hit Hong Kong rather later than elsewhere. But the changes are now here and they are here to stay. This poses new challenges for the banks and, I would add, for the regulators.'

Whilst the SAR's banking sector has largely recovered from the Asian crisis of the late 1990's, and profits are up considerably, current conditions for banks are still quite tough, largely because domestic loan demand has not yet shown a sustained recovery. Their situation could worsen further with interest rate deregulation due in July, which Mr Carse firmly believes is the right thing to do, but does bring with it certain risks and drawbacks. Deregulation of the interest rate, which will involve removing the interest rate cap on savings accounts and the prohibition on the payment of interest on current accounts, is a central feature of the reform measures announced by the HKMA in 1999, but the main problem with it for the banks is that they may have to pay higher interest rates, or interest for the first time, on the previously regulated deposits. Profits might suffer too if deregulation leads to a price war with banks aggressively bidding for deposits.

Mr Carse reassured the banking sector that the HKMA was not planning to involve itself in the regulation of banks' fees and charges, despite calls for this from some quarters. He said: 'The only role for the HKMA would be if it appeared that the banks were engaging in collusive, anti-competitive practices in their charging policies. There is no evidence of this as yet, and given the way in which banks compete in other business areas, the risk of collusion seems quite low. Indeed, a number of banks have already said that they will not impose new charges, for the time being at least....We are in fact already in the process of reviewing the question of whether the HKMA should play a bigger role in consumer issues, and if so what powers and resources we would need for this purpose. It is too soon to say where this will lead, but I stress again that we have no desire to get involved in the regulation of fees and charges.'

Recommended