********************************
Following is a question by the Hon Frederick Fung and a written reply by the Secretary for Financial Services and the Treasury, Professor K C Chan, in the Legislative Council today (November 7):
Question:
As the Deposit Protection Scheme has been implemented for more than one year, will the Government inform this Council whether it has reviewed the various aspects of the Scheme, including the level of public awareness, the impact on the way in which deposits are placed, whether public confidence in depositing money in small and medium banks has grown, whether the total amount of deposits placed in small and medium banks has increased as a result, the situation of banks passing on to depositors the costs of the contributions to the Deposit Protection Scheme Fund, and the areas in need of improvement (e.g. whether the compensation limit of $100,000 per depositor should be increased, introducing a mechanism whereby the compensation limit will be adjusted in line with inflation and changes in the relevant exchange rates, and whether the coverage of the Scheme should be extended, etc.)?
Reply:
Madam President,
The Deposit Protection Scheme (DPS) currently in place in Hong Kong is established under the Deposit Protection Scheme Ordinance (Cap. 581). It seeks to contribute to the stability of the banking system through the provision of a measure of protection to depositors. Since its inception on September 25, 2006, the DPS has been operating smoothly. The DPS Fund amounted to HK$374 million as at end-March this year and is expected to reach the target amount of HK$1.3 billion as scheduled three years later. The DPS is administered by the Hong Kong Deposit Protection Board (DPB) which performs its functions through the Hong Kong Monetary Authority. According to the existing DPS, in case of failure of a member bank, the DPS will pay compensation up to a maximum of HK$100,000 to each eligible depositor.
Since establishment, the DPB has been closely monitoring the effectiveness of the DPS through various means, including meetings, simulation tests and opinion surveys. The DPB has commissioned the Hong Kong Institute of Asia-Pacific Studies of the Chinese University of Hong Kong to conduct two territory-wide opinion surveys. The findings of the latest survey conducted in June 2007 show that of the 1,000 respondents:
- 67% were aware of the implementation of the DPS, with 76% of those knew that the maximum protection limit for each eligible depositor is HK$100,000;
- about 50% considered that bank deposits had become more secure after introduction of the DPS;
- 65% indicated that they had greater confidence in placing deposits with small and medium banks; and
- 29% who had deposits of over HK$100,000 at a single bank indicated that they had plans to split their deposits into different banks.
It can be seen from the findings that the public has general awareness of the DPS. The DPS has not only enhanced public confidence in placing deposits with small and medium banks, it may also affect the way some people place their deposits.
Since variation in the amount of deposits placed with small and medium banks may be caused by many different factors, including socio-economic condition and performance of individual banks, and the DPB and small and medium banks have not conducted any survey on the reasons for depositors to place their deposits, the DPB is unable to assess the impact of the DPS on the deposits placed with small and medium banks.
Owing to intense competition in the local banking industry, we believe that banks will take full account of the impacts to be brought about by passing cost onto depositors. Up till now, the DPB has not received any comment on or complaint about banks passing cost of the DPS onto depositors.
The DPS has been operating effectively for more than a year since its launch on September 25, 2006. The maximum protection limit under the existing DPS, i.e. HK$100,000 for each eligible depositor, has been determined after extensive consultation. With this protection limit, the DPS is expected to provide full protection to more than 80% of depositors. This ratio is in line with international standard. According to the results of the recent simulation tests conducted by the DPB and a number of member banks from the retail sector, more than 80% of depositors are fully covered by the DPS as at present. The DPB therefore considers there no need to adjust the DPS for the time being. The DPB will continue to closely monitor the effectiveness of the DPS. It will review and adjust the relevant arrangements under the scheme, including the limit and scope of protection, according to the need of the community at an appropriate time.
Ends/Wednesday, November 7, 2007
Issued at HKT 12:05
NNNN
