In
this Section:
Bank Deposits
Hong
Kong has one of the largest representation of
international banks in the world: 71 of the
world's 100 largest banks have a presence there.
Hong Kong is the world's 9th largest international
banking centre in terms of the volume of external
transactions, and the second largest in Asia
after Japan.
At
the end of May 2011, there were 149 licensed
banks (126 of which were incorporated outside
Hong Kong), 20 restricted licence banks (of
which eight were incorporated outside Hong Kong)
and 26 deposit-taking companies in business
(all incorporated in Hong Kong). These 195 authorised
institutions operate a comprehensive network
of 1,300 local branches. In addition, there
were 66 local representative offices of overseas
banks in Hong Kong.
The
banking system in Hong Kong is characterized
by its 3-tier system, which is formed by 3 types
of banking institutions, namely licensed banks,
restricted licensed banks and deposit-taking
companies, which are authorised to take deposits
from the general public. The 3rd tier of deposit-taking
institutions operate under different restrictions.
Only licensed banks and restricted licensed
banks can be called banks.
The
Banking Ordinance is the basis of the legal
framework governing the banking sector. The
Ordinance sets forth minimum capital requirements
for authorized institutions. Locally incorporated
banks must have paid-in capital equal to USD388
million and net assets of USD518 million dollars
for authorization to operate a licensed bank.
Applicants for a restricted-license bank must
have paid-in capital equal to USD12.8 million.
Since
1997, the HKMA has been issuing a series of
circulars to set out its regulatory approach
on e-banking services and to provide authorised
institutions with recommendations on the risk
management for these activities.
Among
the issues discussed, the arrangements adopted
by institutions to ensure adequate information
security for their services are one of the key
focuses of the HKMA. While absolute information
security does not exist, institutions are expected
to implement information security arrangements
that are "fit for purpose", i.e. commensurate
with the risks associated with the types and
amounts of transactions allowed, the electronic
delivery channels adopted and the risk management
systems of individual institutions.
In
line with existing authorisation policies for
conventional banks, a locally incorporated virtual
bank cannot be newly established other than
through the conversion of an existing locally
incorporated authorised institution. Furthermore,
local virtual banks should be at least 50% owned
by a well-established bank or other supervised
financial institutions. For applicants incorporated
overseas, they must come from countries with
an established regulatory framework for electronic
banking.
Hong
Kong banks evidently offer many opportunities
to non-resident investors. However, some care
is needed when approaching a 'private banker'
or a bank offering customised relationship management
(there are lots of expressions all amounting
to the same thing). What matters is the structure
of the bank. This is not to say that one kind
of bank is necessarily more reliable than another,
just to understand why the bank is offering
personal attention, and what it hopes to gain
from it.
Some banks are little more than front ends for
investment funds. They may be safe enough, but
are they objective? Perhaps it is best to look
for a bank that is trying to make money out
of private banking as an activity in itself,
rather than just using it as a scoop for customers
for its financial products. If you just want
a bank that will give you a good rate of interest
without deduction of withholding tax, then the
choice is simpler.
Private
banking doesn't just mean investment: banks
like to lend money, and especially to richer
people. This raises the question of how a private
banker is going to get rewarded. Depositing
money with a bank is reward enough, of course,
whether into the bank or into one of its financial
products, but private banking when it has an
advisory nature and is not accompanied by lending
or borrowing may be fee-based. Provided the
sum involved is large enough to justify the
fee costs, an advisory private banking relationship
is probably a good way to go. The bank will
get the benefit from time to time of being able
to offer bridging finance, or of holding large
amounts in transit etc. It can hope for more
substantial involvement with you in future.
But the immediate relationship is between financial
adviser and client.
Deposit
Protection Scheme
Hong
Kong’s enhanced deposit protection scheme,
(DPS) providing a higher protection limit of
HKD500,000 (USD64,300), from a previous limit
of HKD100,000, came into operation on January
1, 2011.
In addition to the increase in the protection
limit per depositor per bank, the scheme also
now includes deposits pledged as security for
banking services. However, as restricted-licence
banks and deposit-taking companies are not members
of the scheme, the scheme does not cover deposits
placed with those institutions.
The
Full Deposit Guarantee provided by the Government
was introduced on 14 October 2008, which guarantees
all deposits held with authorized institutions
(i.e. all licensed banks, restricted licence
banks and deposit-taking companies) until the
end of 2010. This special guarantee is a contingency
measure introduced at the onset of the global
financial crisis in late 2008 to reinforce confidence
in Hong Kong’s banking system.
The Financial Secretary, John Tsang, said the
full deposit guarantee had functioned effectively
to shore up public confidence in Hong Kong's
banking system during the global financial crisis,
but “as the global economy has become
more stable, the provision of this special guarantee
by the government should come to an end as originally
planned."
The
Financial Secretary, Mr John Tsang, said, "The
Full Deposit Guarantee has functioned effectively
to shore up public confidence in Hong Kong’s
banking system during the global financial crisis.
As the global economy has become more stable,
the provision of this special guarantee by the
Government should come to an end as originally
planned."
The Chief Executive of the Hong Kong Monetary
Authority, Mr Norman Chan, said, “Our
banking system remains healthy and robust, with
capitalisation well above international standards.
Public confidence in the banking system has
also remained strong. The expiry of the Full
Deposit Guarantee is not expected to have any
impact on the banking system.”
The Hong Kong Deposit Protection Board has undertaken
extensive publicity campaigns since the second
half of 2010 to raise public awareness on the
changes including their understanding on the
coverage under the enhanced Scheme. Close collaboration
with banks has been maintained to ensure that
they make timely adjustments to their systems
and business flows. Furthermore, the Board has
worked closely with the HKMA as the banking
regulator to remind Authorized Institutions
to make proper representation on the expiry
of the full deposit guarantee and its potential
impact on their customers.
Mrs Chan Wong Shui, Chairperson of the Board,
said, "The enhanced Deposit Protection
Scheme stands ready to provide a means of protection
to depositors. The new protection limit of $500,000
will be able to fully cover about 90% of the
bank depositors. The Board has taken the necessary
measures to prepare for a smooth transition
to the new Scheme."
After the implementation of the enhanced DPS,
the Board will continue to maintain an effective
and efficient DPS in line with international
practice.
Hong
Kong's Deposit Protection Scheme was first launched
on September 25, 2006, with a coverage limit
of $100,000 per depositor per bank.
Enacted on May 5, 2004, the Deposit Protection
Scheme Ordinance governs the setting up and
operation of the scheme. After two years of
intensive preparation,the scheme provided deposit
protection and and collected contributions from
members from the 25th of that month.
All
licensed banks, unless otherwise exempted by
the board, are required to participate as members.
The
main features of the scheme are that:
- Depositors
are not required to apply for protection
or compensation, eligible deposits held
with scheme members will automatically come
under the protection of the scheme;
- Both
Hong Kong dollar and foreign currency deposits
are protected;
- The
scheme protects eligible deposits held in
scheme members, it does notprotect term
deposits with a maturity longer than five
years, structured deposits, secured deposits,
bearer instruments, off-shore deposits and
non-deposit products such as bonds, stocks,
warrants, mutual funds, unit trusts and
insurance policies;
- A
Deposit Protection Scheme Fund with a target
fund size of 0.3% of the total amount of
relevant deposits (translating into a fund
size of approximately $1.3 billion) will
be built through the collection of contributions
from scheme members; and
- Differential
contributions will be assessed based on
the supervisory ratings of individual scheme
members.
Members
are also required to notify their customers
if a financial product described as a deposit
is not protected by the scheme.
For
a fuller treatment of offshore banking, see
www.investorsoffshore.com.
For a listing of Hong Kong banks, see the Hong
Kong Services Directory.
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