Hong Kong: Hong Kong Banking

Overview

• Hong Kong has one of the highest concentrations of banking institutions in the world.
• Approximately 70 of the largest 100 banks in the world have an operation in Hong Kong.
• There were 196 authorised institutions and 70 representative offices in Hong Kong as of 16 July 2010.
• The stature of Hong Kong as a key financial centre is built on its high standard of market transparency, disclosure and prudently supervised financial institutions.
• Hong Kong ranked third in the Global Financial Centres Index (GFCI) by the City of London released in March 2010.
• Under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA), lower barriers are set for Hong Kong banks entering the Chinese mainland market. Since July 2009, Hong Kong banks have been allowed to settle trade transactions between Hong Kong and the Chinese mainland in Renminbi (RMB).

Industry Data

Sources: Monthly Statistical Bulletin, Hong Kong Monetary Authority; Quarterly Report of Employment and Vacancies Statistics, Census & Statistics Department

Service Providers

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 licence banks and deposit-taking companies, which are authorised to take deposits from the general public.

The 3 tiers of deposit-taking institutions operate under different restrictions. Only licensed banks and restricted licensed banks can be called banks. As of 16 July 2010, there were 146 licensed banks, 23 restricted licence banks and 27 deposit-taking companies. Together these authorised institutions operated a comprehensive network of some 1,388 branches. There were also 70 representative offices of overseas banks.

Range of Services

Banks are among the most important channels for fund-raising in the region. The significance of Hong Kong's banking sector can be reflected by its prominence in the region. The quality of Hong Kong's banking system enables it to play a major role in serving well beyond its boundary. Many Hong Kong-based banks have set up operations in other parts of Asia, typically the Chinese mainland.

As of end-June 2010, Hong Kong’s foreign currency reserve assets amounted to US$256.8 billion, the 7th largest in the world. Hong Kong’s per capita foreign currency assets were about US$36,500.

According to the Global Financial Centres Index (GFCI) released by the City of London Corporation in March 2010, Hong Kong ranked third in the financial centre league after London and New York.

Renminbi (RMB) Businesses in Hong Kong

Banks in Hong Kong have been allowed to conduct RMB business for individuals, including RMB deposits, remittances, exchange business and RMB bank cards in the territory since early 2004. RMB deposits in Hong Kong have increased from RMB 12 billion in 2004 to RMB 104 billion as of end-July 2010. As of end-July 2010, there were 77 licensed banks conducting RMB banking business in Hong Kong.

A Real Time Gross Settlement (RTGS) system for RMB was introduced in June 2007 to support the expansion of RMB-denominated business in Hong Kong. On average, it handled 509 transactions with a value of RMB388 million per day in 2009.

Approved mainland enterprises and non-mainland enterprises are now allowed to issue RMB bonds in Hong Kong. The first issue of RMB bonds in Hong Kong, the issue of 3% two-year straight bonds of RMB 5 billion by the China Development Bank was made in July 2007.

The Chinese mainland has also allowed the mainland branches of Hong Kong banks to issue RMB bonds in Hong Kong, and in this connection, HSBC became the first to issue RMB bonds in Hong Kong in June 2009, with an issuance size of RMB 1 billion targeting institutional investors.

As of August 2010, there had been fourteen issues of RMB bonds in Hong Kong, with a total of some RMB 40 billion, including issues by two Hong Kong banks’ subsidiaries on the mainland, the Ministry of Finance, non-financial enterprises like Hopewell Highway Infrastructure Ltd and multinational corporation such as McDonald.

Following the inaugural issue of the offshore RMB-denominated certificate of deposit (RMB CD) floated by the CITIC Bank International (CBI), there has been an increasing number of the RMB CDs offered in the market, including the issues by HSBC, Heng Sang Bank, China Development Bank, Bank of China and Deutsche Bank.

Since July 2009, Hong Kong banks have been allowed to settle in RMB trade transactions between Hong Kong and the Chinese mainland for their customers. Such arrangement can reduce risks arising form the fluctuation in exchange rates while reducing transaction costs; and Hong Kong banks can expand their RMB services form individual clients to enterprises.

Exports

Hong Kong's banking sector is highly external-oriented. Exports of investment banking services amounted to HKD 965 million in 2008, compared to HKD 934 million in 2007, representing a rise of 3% YoY. The mainland is the major export market for Hong Kong's banking services.

Liberalisation of China's Banking Sector

China became a WTO member in December 2001 and all commitments for the banking and financial services had been completely phased in by 2006. In line with China's WTO commitments, the Chinese government has promulgated the "Regulations of the People's Republic of China on Administration of Foreign-funded Banks" with effect from December 2006. The major provisions, among others, are as follows:

• A foreign bank on its own or jointly with any other foreign financial institution can apply to establish a wholly foreign-funded bank in China.
• A foreign financial institution partnering with a Chinese company or enterprise can apply to establish a Chinese-foreign joint venture bank in China.
• The minimum registered capital for a wholly foreign-funded bank or a Chinese-foreign joint venture bank shall be RMB 1 billion or an equivalent amount in convertible currencies.
• A foreign bank that applies for establishing a branch shall satisfy the requirement, among others, that it have the total assets of not less than US$20 billion at the end of the year prior to the submission of the application.
• A wholly foreign-funded bank or a Chinese-foreign joint venture bank may engage in foreign exchange and RMB businesses, including the retail banking businesses like receiving deposits from the general public and conducting bank card businesses.
• As a result, Chinese and foreign banks are now subject to a unified regulatory regime, competing directly with one another under the same market environment and the same supervision regulations.

Closer Economic Partnership Arrangement between Hong Kong and the Mainland (CEPA)

Hong Kong's banking sector is one of the liberalised sectors benefiting greatly under CEPA, with lower barriers set for Hong Kong banks entering the mainland market.

• For Hong Kong banks to set up branches or body corporate on the mainland, the total asset requirement at the end of the year preceding application is lowered to not less than US$6 billion, compared with US$20 billion otherwise for non-CEPA foreign banks.
• There is no requirement for setting up a representative office on the mainland before a Hong Kong bank establishes a joint venture bank on the mainland.
• For mainland branches of Hong Kong banks to apply to conduct RMB business:
  • they have been operating on the mainland for more than two years;
  • in conducting profitability position of all branches of the bank on the mainland instead of the profitability position of its individual branches.
• Applications for setting up bank branches by Hong Kong banks in the central Western and north eastern areas and in the Guangdong will be given priority, thus speeding up access of Hong Kong banks on the mainland.
• According to Supplement VI to CEPA, starting from October 2009, branches of Hong Kong banks in any municipality in Guangdong can apply with the relevant authorities to set up sub-branches in other municipalities within the province.

The easing of restrictions under CEPA benefits not only Hong Kong newcomers to the mainland market, but also Hong Kong banks that have already operated on the mainland. As at end-July 2010, ten Hong Kong banking and financial services providers (excluding insurance and securities) had obtained certificates of Hong Kong Service Supplier.

Hong Kong banks on the Chinese mainland

As of end-December 2009, there were 13 Hong Kong-incorporated banks with business operations on the Chinese mainland, including eight banks operating through subsidiary banks incorporated on the mainland. The 13 Hong Kong-incorporated banks continued to expand their branch network, maintaining over 270 Mainland branches or sub-branches, either directly or through subsidiary banks.

Foreign banks on the Chinese mainland

As of May-2009, 26 foreign banks had gained local incorporation status on the Chinese mainland Mainland-incorporated foreign banks, subject to regulatory approval, are allowed to provide a full range of banking services to mainland residents. Hong Kong-based banks which have incorporated on the Chinese mainland include HSBC, Bank of East Asia, Standard Chartered Bank and Wing Hang Bank.