Bank liquidity remains at historically high levels, and this, coupled with the fierce competition for new lending business, has pushed down lending margins, particularly in the all-important mortgage portfolio. 1  BIS Review 93/2000  It is not only that the market is not growing as fast as it did. The traditional, local players are also beginning to encounter more pressure from global firms, non-bank entrants and competing sources of finance. The competitive environment is giving added impetus to the need for banks to consider how they can use the new technology, and particularly the internet, to drive down costs and broaden income sources. In Hong Kong around 20 banks have introduced transactional banking services for retail customers. Many have already introduced corporate banking services through the internet, or will shortly do so. So far the take-up of these services seems in general to be rather slow. However, a few banks have achieved reasonable levels of usage by customers either because they were early movers or because of their leading market position. Customer acceptance of the internet will undoubtedly grow. But it will not happen overnight, and the contribution to the bottom line will be slow to emerge. In the meantime, the banks will have to bear the extra costs of the investment in the new technology, while margins may come under pressure from the increased ability of consumers to shop around and compare prices.
As I mentioned earlier, the internet shifts the balance of power from banks to the consumers by giving them increased opportunity to shop around. This has coincided with efforts by banks to switch their marketing efforts to consumer finance, credit cards and wealth management products in order to broaden their sources of income and to make up for sluggish business opportunities elsewhere. The internet should help in the cross-selling of these products to consumers, but it is not by itself a guarantee of success. The banks must also ensure that they do not alienate their customers through unfair or opaque terms and conditions. For example, in the internet context, customers should not be held liable for direct losses caused by unauthorised transactions where they are not at fault. Banks therefore need to become more conscious of the fact that they cannot take their customers for granted. They must be prepared to offer them a fair deal, and be seen to do so. This is something that we will be addressing in Hong Kong through revisions to our Code of Banking Practice. In this connection, we have recently issued for consultation some proposals on credit card practices which will eventually be incorporated into the revised Code. These include, for example, a recommendation that banks should publish standardised APRs for the cost of obtaining finance via credit cards. I will close by returning to the theme of the New Economy. It used to be said that the days of the banks were numbered.