Local banks recorded average growth in pre-tax profits of 15% per annum in the six years prior to the Asian crisis. Moreover, most banks remained profitable during the crisis itself and all continued to maintain high capital ratios. Financial distress was therefore not a driving force for merger, as it has been in other Asian countries. But there are signs that the consolidation process is gathering pace in Hong Kong. The reasons for this are to some extent the same as those elsewhere. These include increased competition from both domestic and global players, deregulation, the need to invest in new technology and the increased focus, even for family-owned businesses, on generating shareholder value. All this means that the life of a banker in Hong Kong is not an easy one at present. Some of the old certainties are breaking down. The removal of the remaining interest rate controls in a month's time will usher in a new era of full competition on the liabilities side of the balance sheet. While the surplus liquidity in the system may mitigate the immediate impact to some extent, banks will face new challenges on products, pricing, fees and charges, and asset and liability management. This comes on top of the challenges that the banks are already facing to generate new lending business. The residential property market, which has been the mainstay of most of the local banks' business, is currently drifting without clear direction, and mortgage business is still sluggish, as the latest figures for April demonstrated.
As you remember, around this period of last year, one of the issues that had attracted a lot of public attention was the continued influx of fund flows into the emerging markets including Thailand. But this theme has suddenly changed when the US Federal Reserve signaled in May its intention to scale down, and eventually terminate, its asset purchasing program. The signaling immediately sparked turbulence in capital and currency markets in emerging economies and certainly serves as a recurring reminder that the linkages in the international economy are as psychological as they are mechanical. From June to August, Thailand, like other economies in the region, continued to witness further episodes of outflows as investors continued to reform their expectations towards the exact tapering timeline. 4. In the recent months, turbulence in the markets seems to have somewhat been moderated. This possibly reflects the fact that much has been priced in during the earlier outflow episodes, as well as the fact that it has been clearer to the markets now that any further tapering by the Fed will likely be done in an incremental manner. This is, however, not to say that short-term volatilities are no longer with us. The challenges going forward for policymakers are, therefore, not only to have the right set of policy responses in place to deal with these short-term volatilities, but also to make sure that all the market participants are well prepared for the scenarios that could be expected. 5.