Hong Kong’s local banking industry will consolidate with the simplification of the existing three-tier system.
The Hong Kong Monetary Authority (HKMA) will consolidate the industry by shifting from a three-tier to two-tier banking system, according to a statement.
The existing three-tier system includes first-tier licensed banks, second-tier restricted licence banks (RLB) and third-tier deposit-taking companies (DTC). Under the latest move, DTCs will have five years to either upgrade to the second tier or voluntarily exit the market.
12 Companies
There are currently 12 DTCs in Hong Kong that offer consumer finance, commercial loans or securities services. They have the lowest capital requirements in the three-tier system at HK$250,000 ($32,000) and can accept deposits of HK$10,000 or above. RLBs need to have at least HK$100 million of capital and a minimum deposit size of HK$500,000.
DTCs account for less than 0.1 percent of customer deposits in Hong Kong compared to the 99 percent market share of the 160 licensed banks. The three-tier system was put in place in the 1980s and the HKMA has not received any application for a DTC since 2009.
Consultation Feedback
The decision to convert into a two-tier system was made after public consultation. According to the HKMA, there were seven submissions from the banking industry, professional bodies and relevant organizations in the consultation which were «broadly supportive» of the move.
«We have carefully considered the suggestions received and adopted them as appropriate. The HKMA will provide guidance to the DTCs in their transition,» said HKMA chief executive Eddie Yue. «Following the issuance of the consultation conclusions, the HKMA will work with the relevant parties to prepare the proposed legislative amendments to implement the proposal.»
