Is there a case for improving consumer protection for bank customers? If there is, how should it be done?
There has, in recent years, been much keener competition among banks in Hong Kong. This is partly the result of a conscious policy on our part to enhance competition, and therefore the efficiency and robustness of the banking system. We have, for example, promoted the deregulation of interest rates, and, although this policy may have put some pressure on the profitability of the banks, it has helped to produce what is widely and internationally recognised as one of the most robust banking systems in the world.
Bank customers, in particular borrowers, have benefited from greater competition in the banking sector. This tends to be overlooked, but the fact of the matter is that, for example, mortgage rates have come down from being priced at prime plus 1.75% a few years ago to prime minus 2.25% now - a fall of four percentage points.
This is good for consumers, but not so welcome to banks, which have seen their margins squeezed. It is understandable that, under such a competitive environment, banks would consider charging, or increasing the fees and charges, for their services so as to reflect better the costs in the provision of such services. It is, however, also arguable that the responsibility to carry such costs do in fact come with the banking franchise and therefore the privilege to enjoy the differential between deposit and lending rates.
But, again, market forces under a freely competitive environment should be able to determine an optimal outcome. The problem, however, is whether there is indeed, in the banking market, free competition in the pure sense, where the products (and the risks in using different suppliers) are homogeneous and where there is the necessary, objective information available to bank customers to facilitate their making a free choice. This purely free market of the textbook, unfortunately, does not exist in the real world. And market imperfection has the tendency, among other things, to disadvantage those with less market bargaining power. This is why we have been working hard with the Hong Kong Association of Banks in the past few years to ensure that the provision of banking services is conducted in a fair and transparent manner, through the promulgation and subsequent review of the Code of Banking Practice. It is important for consumers to be able to make a choice with clear and sufficient information.
Also, banks are venturing into a much wider and more sophisticated range of services than before, including products in the consumer finance and wealth management areas. This introduces greater complexity and perhaps scope for greater friction into the relationship between banks and their customers. It is necessary therefore to ensure that banks are following the codes of conduct adopted for the provision of such services. It is also important to have in place mechanisms for resolving - in a cost effective and expeditious manner - any customer disputes that may arise. These issues, coupled with the increased competition, raise the question of how banking consumer protection should be addressed.
Although the HKMA does not have a clear legal responsibility for banking consumer protection, we have raised this issue for public discussion. We have also provided a comparison of international practices to facilitate that discussion. The HKMA has an open mind on the matter, particularly in respect of its possible involvement in any new initiatives. It may be that the balance of opinion in the end is that the Code of Banking Practice, with effective monitoring of compliance, of a statutory nature or otherwise, is considered adequate, given the high degree of competition in the banking sector in Hong Kong. It may also be that supplementing current practice with arrangements for the investigation, resolution and arbitration of customer complaints is appropriate. Let all those interested in the subject - a subject affecting the wellbeing of the majority of the people of Hong Kong - express their views. The HKMA stands ready to assist.
Joseph Yam
10 May 2001
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