At the beginning of this year, the HKMA commissioned KPMG and Barents Group LLC to conduct a review on the strategic outlook of the Hong Kong banking sector over the next 5 years. We also requested the consultants to review a number of regulatory features in Hong Kong and the HKMA's current supervisory approach in light of the changes that are expected to take place in the banking sector over the medium term.

The consultants have now completed the study and I have pleasure in enclosing a copy of the Executive Summary of the report for your reference. During the course of the study, many of you were invited to contribute comments by way of surveys and interviews with the consultants to assist them in gathering the necessary information for this project. Your views have provided the consultants with valuable insights into the banking sector and formed a crucial part of their considerations in the final recommendations. Therefore, I would like to take this opportunity to offer my thanks for your co-operation with the consultants.

The consultants have made recommendations with respect to a number of the existing banking regulations. These are aimed primarily at raising the level of competition in the sector as well as improving the safety and soundness of the system as a whole. The recommendations cover a wide range of issues including, inter alia, the one branch policy on foreign banks, the three-tier system, market entry criteria, financial disclosure, depositor protection and the remaining interest rate rules of The Hong Kong Association of Banks. There are also recommendations to enhance the HKMA's supervisory regime to keep up with developments in the banking market. The consultants consider that these two sets of recommendations concerning the regulatory system and supervisory approach are related to each other and should be implemented using a phased approach. Accordingly they recommend that measures aimed at enhancing the competitiveness of the banking sector should be undertaken in parallel with measures to enhance the safety and soundness of the system.

I would also stress that the recommendations contained in the report are those of the consultants only and neither the Government nor the HKMA have taken a view on their proposals.

The recommendations will need to be carefully considered by the Government and the HKMA before they are implemented. We will be making details of the recommendations available to the public in the near future, to be followed by a three-month consultation period. Any interested parties wishing to comment on the recommendations are welcome to do so.

Updated on 18 Dec 1998