Attached is a speech delivered by Mr Joseph Yam, Chief Executive
of the Hong Kong Monetary Authority (HKMA), at a lunch today (15
January) with representatives of the Finance Constituency organised
by Dr David Li.
The speech outlines the latest state of play on the HKMA's
current initiatives in the area of banking supervision, as well as
responding to some points raised by Dr Li on behalf of the Finance
Constituency.
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- I would like to thank David Li for arranging today's lunch with
representatives of the Finance Constituency. The number of live
issues in the realm of bank supervision, some of which have been
set down in David's letter in advance of this lunch, is currently
quite considerable, so it is useful to have this opportunity to get
together to exchange views. As you will know, it is very much our
style to work in close collaboration with the banking industry on
developing our policies rather than to adopt a confrontational
approach, and long may this continue.
- Let me run through what I see as the HKMA's main initiatives in
the bank supervision area in the next twelve months, in the course
of which I will try to pick up some of the points made in David's
letter. I see there being three main initiatives, namely:
(1) deposit protection;
(2) deregulation and other market reforms; and
(3) the credit reference agency.
- On deposit protection, we are now coming to the end of the
consultation period on the consultants report - in fact there are
just two days left, so if you want to make a submission, you will
have to hurry! Once we have collected in everyone's comments we
will carefully review them and determine whether to recommend going
ahead with such a scheme and, if so, exactly how it should be
structured. As you will be very aware, the views of the banks on
this issue are mixed, whereas LegCo has given a clear endorsement,
and most other parties are also in favour. But, assuming we do go
ahead, this is really only the beginning, and there will be a lot
of work to be done on the design features. For example, should
coverage of the scheme be limited to $100,000, or should it be
$200,000? Should funding be ex-ante or ex-post? Should premiums be
risk-based? None of these issues have been decided yet, so we
welcome any constructive comments and will certainly consider them
carefully.
- One particular question that has been raised is whether
deposits with RLBs and DTCs should be covered. The consultant
suggested not, primarily on the grounds that excluding them would
be consistent with the institutional coverage of the current
priority claims provisions. Moreover, the aim of deposit protection
is to protect small retail depositors, i.e. depositors with
deposits of less than $100,000, and DTCs and RLB do not have such
depositors. However, the issue of whether their exclusion from
coverage might adversely affect the business of RLBs and DTCs needs
to be considered. Certainly one might argue that as the first
$100,000 of deposits of over $100,000 with licensed banks would be
covered, the same should apply to deposits with RLBs and DTCs. This
is something that we will consider further in the light of the
views that have been expressed.
- Moving on to the issue of deregulation, July, of course, will
see the full abolition of controls on interest rates. This is
highly significant, as such controls are surely inimical to Hong
Kong's free competition ethos. Certainly this change in the status
quo will provide certain challenges for institutions, but in the
long run the competition, innovation and efficiency that the
removal of such barriers will engender will help to keep Hong
Kong's banking sector competitive and profitable. We also, as you
know, hold the view that some greater consolidation among the local
banks would be desirable from this point of view, although we have
not forced the issue. This is something, however, to which we would
urge bank owners to give careful thought.
- It is clear that as part of the process of deregulation of
interest rates banks will be considering revising certain fees and
charges. This, of course, is understandable. If deregulation is to
improve competition and efficiency, banks must be free to adjust
their pricing not just on interest rates but also on fees and
charges. I have absolutely no argument with this. However, I very
much hope that banks will display some sensitivity on this, and
will bear in mind the public interest. They should also ensure that
their pricing is transparent, and that customers have good notice
of any changes.
- In addition to interest rate deregulation, there are a number
of other market reform measures originating from the consultancy
report published a year or so ago which are still being progressed.
For example, later this year we will consider whether there should
be some further relaxation of the restriction on the opening of
branches by foreign banks which have entered the market since 1978.
We also plan to review whether the three-tier system of
authorisation might be reduced to two tiers, although we do not
plan to visit this issue until next year - i.e. 2002 - and have
quite an open mind on this. This is rather later than we originally
intended. But it reflects the fact that we believe that the present
system is working reasonably well and that there is no pressing
need to change. We are also heavily preoccupied with deposit
insurance and the outcome of that exercise may influence the way in
which the three tier structure is modified - most obviously,
whether the deposit threshold for DTCs should continue to be set at
$100,000.
- Also on the back burner for the time being is consideration of
whether there should be any change to the minimum paid-up capital
requirements for locally-incorporated AIs. This obviously is tied
in to some extent with the reform of the three-tier structure, as
if we did amalgamate the RLBs and DTCs into a single class we would
have to decide what the minimum paid-up capital requirement for the
class should be. This is something we will have to consider in due
course, but we are of course well aware that a higher requirement
would have implications for some of the smaller DTCs, and we will
certainly have regard to this. Aside from any change related to the
reform of the three-tier structure, we don't at present have any
other plans in relation to the minimum capital requirements,
although at some point we may want to consider updating them in
line with inflation.
- On the third initiative I mentioned, the credit reference
agency, some of you may know that we have established a working
group to take this initiative further. The consultation we
conducted indicated that there was quite widespead support for such
an agency, although having said that it is fair to say that there
was quite a diversity of opinion on various aspects. The working
group will investigate this further and try to arrive at a
recommended way forward. But we hope that something can be done in
this area, as most seem to agree that such an agency would be
beneficial.
- So that brings me to the end of what I see as the three main
initiatives, but let me also comment on a few other outstanding
matters. First is the vexed question of the approval of managers. I
must confess we have been a little taken aback by some of the
reaction to this proposal, which seems to question our motives for
seeking such a power. All I can say is that we have no ulterior
motives. We simply feel that if individuals are to fill important
positions in banks then steps should be taken to ensure that they
are fit and proper for the position. Clearly it is the banks'
responsibility to select individuals and satisfy themselves as to
their credentials, and you can be assured that we have absolutely
no desire to second-guess these decisions. However, it is a fact
that we may, on occasion, have access to information on an
individual which the bank does not have. We would see ourselves,
therefore, as acting as very much a second line of defence - and
only in exceptional cases. A number of banks see the logic in this
and support our proposals. Others remain less enthusiastic. But we
are consulting the industry further on this and I hope that
something that is acceptable to all can be arrived at.
- Next is the issue of the review of the Code of Banking
Practice, in relation to which it is suggested in David's letter
that some people are unhappy about the stance taken by the HKMA. On
this, I am afraid, I have rather less sympathy than on other issues
with those who raise concerns. I do not believe that any of the
changes promoted in the Working Group, such as in relation to
credit cards and also to fees and charges, are unreasonable.
Indeed, most banks seem to have accepted the rationale for changes
such as the $500 card loss limit, which brings Hong Kong into line
with international practice. I believe that the banks must
appreciate that issues relating to terms and conditions and other
aspects of customer service are a legitimate matter of public
interest and concern. In the past, it is true, the HKMA has not
been as closely involved in consumer matters. This, however, is
something that is changing, not because we particularly desire it
but because it seems to be what the public expect. We plan,
therefore, to review our involvement in this area so as to
determine exactly what our role should be.
- Finally, there have been concerns expressed that the HKMA's
supervision has become more intrusive and that requests for
information are sometimes excessive. This is certainly something we
are aware of, however I should point out that we don't ask for
information just for the sake of it. If we ask for some new
information, or for an institution to increase the frequency of its
reporting, there is always a very good reason for it. I know that
we asked for a lot of additional information, particularly
following the onset of the Asian financial crisis, but I make no
apology for this, as I can assure you it was necessary for our
monitoring of the banking sector, and of individual institutions,
through the crisis. But having said that, we are of course very
well aware of the burden that this places on institutions, and can
assure you that we will continue to keep our information
requirements under review with this in mind. We are also aware of
the need to ensure that our staff deal with the banks with the
appropriate degree of sensitivity, that they only make requests
which are reasonable, and that they try to explain why particular
things are required. This is quite a challenge for us, but it is
something we must work on nevertheless.
- This brings me to the end of my remarks. I have not said
anything on the bankruptcy laws or tax issues, which were two
issues I was asked to addresss, but I don't think there is much I
can say on these areas except that we appreciate the banks' views
and will reflect these to the appropriate authorities as
appropriate. Certainly we are aware of the rising trend in personal
bankruptcies and the possible impact of this on delinquencies, and
this is something we are watching closely. We are also in dialogue
with the Privacy Commissioner and other parties to try to get the
scope of the credit data that can be released to credit agencies
increased, which would perhaps help in this area.
- I hope these comments have been of interest to you all. Let me
end on a positive note. We are all part of a highly successful
industry here in Hong Kong. As banking regulator, it is the HKMA's
objective to promote a safe and stable banking system. To achieve
this we need the banking industry to be successful, profitable,
competitive, innovative, and responsive to change, and this surely
is your objective too. So let's continue to work together on
initiatives such as those I have discussed today so as to ensure
the continued prosperity of our industry.
- Thank you.
Hong Kong Monetary Authority
15 January 2001