I have therefore recently suggested to the Hong Kong Association of Banks that it would be timely to review the manner in which workouts operate in Hong Kong. I will close by pulling together some of lessons that can be drawn from our experience during this difficult period. The Asian crisis has demonstrated weaknesses in banks’ credit controls and even Hong Kong has not been immune from these. Improvements need to be made to deal  5  BIS Review 53/1999  with the aftermath of the crisis and to reduce the chances of similar problems in the future. The key points I would recommend to the banks are as follows: •  Be clear about your lending strategy, including how much risk, and what types of risk, you are prepared to undertake. •  Know your customer, his business and, to the extent possible, his other financial commitments. •  Keep track of what your lending is actually being used for. •  Lend on the basis of cash flow rather than collateral. •  Maintain an effective early warning system for problem loans and make sure that the loan portfolio is properly graded. •  Devote sufficient resources to debt recovery and make sure that your workout staff are properly trained. •  Approach debt workouts in the right spirit of compromise and consensus. These are very basic messages that should be familiar to any prudent lending banker.
But the experience of credit risk during the Asian crisis shows that they are all too easily forgotten. Thank you for giving me the opportunity to issue this reminder. BIS Review 53/1999  6