I am not in this speech going to summarise all our reform measures, which are due to be implemented over the period to the end of 2001. Instead, I will describe what we have done so far, and the main tasks that remain to be done. The progress on competitive reforms So far we have introduced three main changes that are intended to promote competition: •  In September 1999, the one-building condition that applied to foreign banks licensed after 1978 was relaxed to allow such banks to open branches in a maximum of three separate  BIS Review 69/2000  2  buildings. At the same time we eliminated any restriction on the number of regional and back offices that foreign banks can maintain. •  In December 1999, we announced that agreement had been reached with the various parties involved for restricted licence banks to join the RTGS interbank payment system. The detailed legal arrangements were finalised in May of this year and a formal invitation to join the system was issued to those RLBs with a clear business need to do so. •  Finally, at the beginning of July of this year, we embarked on the first phase of deregulation of the remaining interest rate rules. This involved removal of the interest rate cap on time deposits with a maturity of less than 7 days. Following this, all time deposits are now completely deregulated. What has been the reaction to these changes? The answer is that not much has happened so far.
Profits rose sharply and bad debts were lower. This means that the clouds that have hung over the banking system for the last two years have now lifted. But it would be wrong to conclude that life for the banks will go on much the same way as it did before in the golden years before the crisis. The competitive environment for the banks is becoming increasingly intense. Of course, you can argue that there is nothing new in this. The banking system in Hong Kong has always been competitive, which is one of the reasons it was able to cope with the Asian crisis. But competition in past years was taking place in highly buoyant conditions and within defined limits, reflecting in part the influence of the interest rate rules of the Hong Kong Association of Banks. 1  BIS Review 69/2000  The competitive environment Now things are somewhat different. A number of major players in the market, including some foreign banks, are competing even more intensely than they did before. Some of them have recently increased their presence in Hong Kong or are planning to do so. In some cases, this presence may be in virtual form as banks increasingly offer their services in whole or in part over the internet. This is part of a worldwide trend towards greater competition. But it is happening in Hong Kong at a time when lending growth has still not recovered along with the economy.