Relaxation of Market Entry Criteria for Banking Sector

The Executive Council has endorsed the proposals put forward by the Hong Kong Monetary Authority (HKMA) to relax certain market entry criteria for the banking sector.

In December 2001, the HKMA completed a review of the existing market entry criteria and the three-tier authorization system. In view of the ongoing consolidation in the sector and the fact that the banking supervisory system has been further strengthened, the HKMA believes that some of the market entry criteria can be relaxed without compromising banking stability. The main proposals arising from the review are:

1. replacing the US$16 billion asset size criterion for overseas-incorporated bank applicants by the much lower balance sheet size criteria applicable to locally incorporated bank applicants, which are currently HK$3 billion for customer deposits and HK$4 billion for total assets;
2. reducing the period of operation as a restricted licence bank (RLB) or deposit-taking company (DTC) from ten to three years and dispensing with the "association with Hong Kong" requirement for locally incorporated RLBs and DTCs to upgrade to licensed bank status;
3. increasing the minimum capital requirement for locally incorporated bank applicants from HK$150 million to HK$300 million and extending this requirement to overseas-incorporated bank applicants (in respect of the bank as a whole). This adjustment aims at striking a balance between making it easier for institutions to enter the market as full licensed banks and avoiding a multiplicity of small banks;
4. allowing overseas incorporated banks to subsidiarise their Hong Kong operations provided that they have been authorized to conduct banking business in Hong Kong for not less than three years and the amounts of customer deposits and assets that will be transferred to the subsidiary seeking authorization are not less than HK$3 billion and HK$4 billion respectively; and
5. maintaining the current three-tier authorization system until the proposed changes to the market entry criteria have bedded down and worked their way through the system.

To give effect to the above proposals, the Chief Executive in Council has issued the Banking Ordinance (Amendment of Seventh Schedule) Notice 2002 under section 135(1) of the Banking Ordinance. The Notice is published in the Gazette today (10 May 2002) and will be laid before the Legislative Council for negative vetting.

"The proposed relaxation of the market entry criteria would help to attract a broader range of domestic and international institutions to participate in our banking sector. This would be conducive to maintaining Hong Kong's status as an international financial centre," said Mr David Carse, Deputy Chief Executive of the HKMA.

Given that a number of changes have been introduced to the authorization regime over the past few years, the HKMA has initiated a comprehensive review of the Guide to Applicants, which provides guidance to institutions seeking authorization under the Banking Ordinance. An updated Guide will be available shortly. In the meantime, a brief note summarising the major changes to the authorization system has been produced for the reference of interested parties. This summary note can be accessed from the HKMA's website (http://www.hkma.gov.hk).

For further enquiries, please contact:

Jasmin Fung, Manager (Press), at 2878 8246 or
Sylvia Yip, Manager (Press), at 2878 1687

Hong Kong Monetary Authority
10 May 2002

Encl: Summary Note on Major Changes to the Guide to Applicants for Authorization under the Banking Ordinance (MS Word, 37KB)

Related Information:
Circular to all Authorized Institutions, 10 May 2002