Overview

• Hong Kong has one of the highest concentrations of banking institutions in the world. 68 of the largest 100 banks in the world have an operation in Hong Kong.
  
  
• As at end-April 2008, there were 203 authorised institutions and 76 representative offices in Hong Kong.
  
  
• Hong Kong is Asia's third largest international banking centre in terms of external transactions and the second largest loan syndication centre.
  
  
• The banking sector contributes to Hong Kong's status as the world's sixth largest foreign exchange centre.
  
  
• 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.
  
  
• Under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA), lower barriers are set for Hong Kong banks entering the Chinese mainland market. As at end-April 2008, eight Hong Kong banking and financial services providers (excluding insurance and securities) had obtained certificates of Hong Kong Service Supplier.
  
  
• Banks in Hong Kong have been allowed to conduct Renminbi (RMB) business for individuals since early 2004.
  
  
• Mainland financial institutions are allowed to issue RMB bonds in Hong Kong after obtaining approval.
  

Industry Data

Range of Services

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 authorized to take deposits from the general public.

The 3-tier of deposit-taking institutions operate under different restrictions. Only licensed banks and restricted licence banks can be called banks. As of end-April 2008, there were 143 licensed banks, 31 restricted licence banks and 29 deposit-taking companies from over 40 countries/territories. Together these authorised institutions operate a comprehensive network of some 1,300 branches. There were also 76 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 not just by its sheer size (banking assets are about six times of the GDP), but more important, 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.

The banking sector plays a vital role in establishing Hong Kong as the second largest loan syndication centre in Asia.

The banking sector, being the major participant of the Hong Kong foreign exchange market, also contributes to Hong Kong's status as the world's sixth largest foreign exchange centre.


Renminbi (RMB) Businesses in Hong Kong

On another development, 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 increased from RMB 12 billion in 2004 to RMB 58 billion as of March 2008.

A Real Time Gross Settlement (RTGS) system for RMB was introduced in June 2007 to support the expansion of reminbi-denominated business in Hong Kong.

Mainland financial institutions, after obtaining approval, could issue RMB bonds in Hong Kong. The first issue of RMB bonds in Hong Kong, the 3% two-year straight bonds of RMB 5 billion by the China Development Bank was made in July 2007. By end-2007, there had been three issues of RMB bonds totalling RMB 10 billion.


Exports

Hong Kong's banking sector is highly external-oriented. Hong Kong is the third largest international banking centre in Asia in terms of external transactions. The banking system's external transactions amounted to US$859 billion as at June 2006. The mainland is the major export market for Hong Kong's banking services.


Liberalisation of China's Banking Sector

China became a WTO member on 11 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 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 of 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 those liberalised sectors that would benefit significantly under CEPA. Under CEPA provisions, lower barriers are 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; for finance companies to set up body corporates, the total asset requirement at the end of the year preceding application is not less than US$6 billion. This will facilitate small and medium-sized banks in entering the Mainland's banking sector.
  
  
• There will be no requirement for setting up a representative office on the mainland before a Hong Kong bank establishes a joint venture bank or joint venture finance company on the mainland, or before a Hong Kong finance company establishes a joint venture finance company 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 province of the mainland will be given priority. Though the actual processing time will depend on the complexity of each case, this would speed up access of Hong Kong banks on the mainland in these areas.

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-April 2008, eight Hong Kong banking and financial services providers (excluding insurance and securities) had obtained certificates of Hong Kong Service Supplier.

Foreign banks on the Chinese mainland

As of end-2007, 21 foreign banks gained local incorporation status. Locally 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. By April 2008, Bank of East Asia has 51 branches/sub-branches on the mainland.