banking groups in hong kong, 1945-65

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Banking Groups in Hong Kong, 1945-65Catherine R. SchenkPublished online: 06 Sep 2010.

To cite this article: Catherine R. Schenk (2000) Banking Groups in Hong Kong, 1945-65, Asia Pacific Business Review, 7:2,129-154, DOI: 10.1080/713999086

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III

BANKS, BUSINESS GROUPS AND THE STATE

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Banking Groups in Hong Kong, 1945–65

CATHERINE R. SCHENK

There was a variety of overlapping banking groups in Hong Kong afterthe Second World War. This included authorized banks (able to deal inofficial foreign exchange) and unauthorized banks (which operated thefloating exchange market), modern commercial banks and traditionalChinese or ‘native’ banks. In addition there were foreign banks fromEurope, Asia and America. Overseas Chinese in South-East Asiacontrolled banks registered in Hong Kong and in their home countries,and of course there were the Chinese state-controlled banks registered inBeijing. During the period 1945–65 there was a dramatic surge in bankingactivity in Hong Kong. This article describes the challenges this posed forthe banks and for the regulators, and assesses the impact of these changeson the nature of banking groups in Hong Kong, and the provision offinance to industry.

REGULATORY ENVIRONMENT

The Hong Kong banking system was notoriously unregulated. There was nocentral bank and, until 1965, no effective banking legislation. Three privatebanks issued the currency and there was no active monetary policy in thecolony. In the immediate post-war period banks sprouted up to service theswelling population of Hong Kong, and the accompanying inflow of capital.By mid-1947 about 250 institutions offered banking services; including 14European/American banks, 32 Chinese commercial banks, 120 nativebanks, 76 exchange shops and 20 others including insurance companies.1 Atthis point the financial secretary became concerned that some of theseinstitutions were taking advantage of the unstable economic and politicalclimate in China to engage in smuggling and unstable speculation (Ghose,1987: 63). This prompted the Banking Ordinance of January 1948, whichremained in force until 1965.

The ordinance defined what constituted a bank very loosely, andincluded many small institutions that performed only a limited range offinancial activities, including money-changing or remittances.2 There wereno reserve requirements, nor statutory liquidity ratios, and no requirementto publish or even to prepare complete balance sheets. So long as theHK$5000 licence fee could be raised, individuals or groups were free toattract deposits and operate as banks. Special provisions were included toallow the native Chinese banks to operate within the ordinance by paying a

Catherine R. Schenk, University of Glasgow

Asia Pacific Business Review, Vol.7, No.2, Winter 2000, pp.131–154PUBLISHED BY FRANK CASS, LONDON

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smaller licence fee of HK$500 to act as money-changers. The ordinancealso established a Banking Advisory Committee that operated theregulations and granted licences.3

When the 1948 Ordinance was due to be replaced, the FinancialSecretary noted that it ‘is of little practical use for the protection either ofdepositors or of the general financial security of the Colony’.4 In 1948, 143banks were licensed under the regulations, but this total soon declined assmall banks suffered from the interruption of commerce with China. By1950 there were 133 licensed banks, 92 by 1954, and 82 by 1959.

DESCRIPTION OF THE BANKING GROUPS

Authorized Banks

The authorized banks tended to be the larger and more moderninstitutions, including almost all the foreign banks. They comprised theExchange Banks’ Association, which set the official exchange marginsand rates for merchanting business.5 They were allowed to deal in foreignexchange at the fixed exchange rate and in return enforced the exchangecontrol of the colony. While the overall number of licensed banksdecreased, the number of authorized banks increased from 23 in 1950 to42 in 1959, partly due to the increase in foreign banks operating in HongKong. Becoming an authorized bank was not necessarily linked to anyconsiderable economic advantage, except that members could buy foreignexchange at a slightly better interbank rate. Indeed these banks wereprecluded from engaging directly in the free exchange market, but thelabel was considered an important status symbol.6 Authorized bankscould, of course, instruct non-authorized banks to act in the free marketfor them. Among the authorized banks were the note-issuing banks; theHongkong and Shanghai Bank (hereafter Hongkong Bank), the CharteredBank and the Mercantile Bank.

‘Modern’ Banks

The ‘modern’ banks embraced conservative lending practices, oftenpreferring self-liquidating loans. Many were members of the Hong KongExchange Banks Association and all were part of the Hong Kong ClearingHouse. The Hongkong Bank dominated this group, as it did the entirebanking system. Registered in Hong Kong, the bank was run by Britishexpatriates and was deeply embedded in the commercial and industrialactivity of the colony.

The Bank of East Asia was the largest Chinese-controlled modern bankin Hong Kong. Along with the Bank of Canton, Shanghai Commercial Bankand Chekiang First Bank, it pursued a particularly cautious strategy withrespect to lending and branch networks throughout this period, whichallowed it to weather the storms of crisis which drove other less prudentbanks out of business (Jao, 1974: 194; Sinn, 1994). Until the mid-1950s it

132 ASIA PACIFIC BUSINESS REVIEW

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was also extraordinarily restrictive with respect to deposits. Initial depositshad to amount to at least HK$30,000 and be accompanied by letters ofrecommendation from two existing depositors (Sinn, 1994: 100). With theexception of one year (1959), the Bank of East Asia maintained anextraordinarily high liquidity ratio, above 70 per cent between 1953 and1964 (Jao, 1974: 194).

Foreign banks

Table 1 shows the source country of the 29 foreign banks operating inHong Kong as of 1965. Those from South-East Asia were primarilyoverseas Chinese banks that channelled remittances and financed tradethrough Hong Kong, and had head offices in Singapore, Malaysia, thePhilippines and Thailand. Of the foreign banks, nine were establishedbefore 1939 (including the Chartered and the Mercantile). A further sixforeign banks arrived in Hong Kong between 1948 and 1957, and roughlytwo per year opened offices until 1965. About half of the foreign banksopened additional branches beginning in 1959, so that by 1965 there were46 branches of foreign banks in Hong Kong, plus 17 local branches of theChartered Bank. After the Chartered Bank, Banque Belge pour l’Etrangerhad the most aggressive branching policy. It opened its first branch inHong Kong in 1935, its second in 1960, and had a total of five offices by1965.

Foreign banks entered the Hong Kong market through acquisition aswell as green-field investment. In October 1962 the Japanese Dai-IchiBank bought one-third of Chekiang First Bank’s capital stock (aninvestment of Y126m) and appointed two Japanese officers to the bank’sboard of directors. The cooperation was intended to increase local andSouth-East Asian foreign exchange operations.7 In 1963 the ChaseManhattan Bank bought the Hong Kong, Singapore and Bangkok branchesof the Nationale Handelsbank from the Rotterdamsche Bank as part of abroad expansion into South-East Asia.8 Acquisition became morewidespread after the government imposed a moratorium on new bankinglicences in 1965.

As in European financial centres, American banks were considered keencompetitors. In 1959 Perry-Aldworth of the London office of the HongkongBank noted that ‘the Americans are fierce competitors who keep to no rules,and surely it is good policy to make things as expensive and as difficult for

BANKING GROUPS IN HONG KONG, 1945–65 133

TABLE 1

SOURCE OF FOREIGN BANKS OPERATING IN HONG KONG IN 1965

Japan 3Europe 6South Asia 4SE Asia 10USA 6

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them as possible’.9 In 1964 the Hong Kong manager of the Hongkong Bankreported that ‘the amount of travelling that American bankers do in this partof the world is quite staggering. I am afraid there is no doubt that they wantto dominate the financial scene in South-east Asia’.10

The influx of foreign banks provoked considerable resentment,mainly because they made the commercial bill market particularlycompetitive, squeezing smaller local banks into less liquid assets(Williams, 1963: 37). H.J. Tomkins of the Bank of England reported thisresentment during his visit to Hong Kong in 1961–2, but he dismissedclaims that these banks were engaged in ‘unfair’ competition andrejected calls for restrictions on their activities since ‘Hong Kong, whichis so dependent on international freedom of trade and payments, wouldbe ill-advised to impose discriminatory restrictions on expatriate banks’(Tomkins, 1962: 8).

China State Banks

After 1945, several banks controlled by the Chinese government operatedbranches in Hong Kong to finance international trade and remittances. By1949 there were nine such banks in Hong Kong controlled by either theChinese government or provincial governments.11 The local employees allpledged their support to the PRC and most were allowed to continueoperations under the direct control of the Communist government. By 1960there were ten Beijing-registered state banks as well as two registered inHong Kong; Nanyang Commercial Bank and Po Sang Bank. The lattermainly engaged in bullion dealing and so was sometimes classified as anative bank. All the others were authorized exchange banks. The group wasdominated by the Bank of China, which operated as the foreign exchangeagent for the Chinese government and was the major financial link betweenChina and the rest of the world.

Native Chinese Banks

One of the unusual aspects of the Hong Kong banking scene was thepersistence of very small banks. This dual structure can be explained partlyby reference to the low economies of scale of their activities. Hong Kongoffered a wide range of speculative opportunities including the gold market,foreign exchange, real estate and the stock market, all of which had smallentry costs. The literature on the nature of Chinese capitalism and businessnetworks has emphasized the importance of personal trust and connections,and family control of enterprises, all of which contributed to the persistenceof relatively small firms in the banking sector of Hong Kong, as well as themanufacturing sector.

Native banks also received government support because they served thelocal Chinese population in ways that British banks and the larger Chineseand foreign banks did not. This had political implications for the colonialgovernment, which did not want to be seen to threaten these traditionalChinese institutions. When the British government forced the closure of the


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gold market in 1948, the Governor of Hong Kong, Sir Alexander Grantham,complained to London: ‘For almost a century trade in gold has been pre-eminent and traditionally in the hands of native banks of Hong Kong.Prohibition would inevitably arouse grave resentment and might have far-reaching consequences.’12 It will be seen below that when new bankinglegislation was being devised, the native banks’ position was preserved,again essentially for political purposes.13

The ‘native’ or local banks were identified by their membership of theChinese Gold and Silver Exchange, their closer relationships with theircustomers (including longer opening hours), and a more relaxed attitude tocollateral for loans. They ranged from large, incorporated institutions tosmall sole-proprietorships or unincorporated partnerships.14 In the 1940smost had branches in major cities in China as well as Hong Kong tofacilitate remittances, and some operated formal or informal brancheselsewhere in South-East Asia. Their traditional activities were money-changing, bullion dealing, transferring remittances, and financing trade.Many were closely associated with Macao banks and gold dealers. TheHang Seng Bank, for example, was linked with the leading Macao nativebank, Tai Fung Bank, which was run by the gold dealer Fu Tak-yam. ChiuTai bank was owned by a son of Ko Ho-ning, a wealthy Hong Kong residentwho originated in Macao.15 In the financial instability of the late 1940s,these banks accumulated considerable profits through the evasion ofexchange and trade controls and expanded their capital, but many latersuffered from the economic recession of the early 1950s. Those thatsurvived widened their activities to include speculation in real estate and thestock market.

The service offered by the smaller banks was reinforced by theaccessibility of managers to their customers, which provided ‘anatmosphere in which banking customers feel that they are well looked afterand their problems sympathetically considered’ (Ng, 1962: 307). Thispersonalized and flexible service was a source of competitive advantageover the larger commercial banks. As will be seen, this advantage erodedthrough the first half of the 1960s as other banks opened branches in thegrowing residential areas outside Hong Kong Island.

In the prosperous years of the late 1940s, six banks emerged as theleaders of this sector: Hang Seng, Dao Heng, Wing Loong, Wing Tai, WingHang, Kwong On and Hang Loong. In May 1948 the Far Eastern EconomicReview reported that ‘their considerable reserves, the acumen proved bytheir managers, the good reputation enjoyed among Chinese and Europeanclients have further tended to increase the volume and scope of these nativebanks’ businesses.’16 In 1947, only 20 of the 200 native banks made losses,while the rest posted profits ranging from HK$100,000 to Hang Seng’sHK$6 million.17

As the opportunity to make quick profits by exploiting exchangecontrols between China and Hong Kong ended, there was a consolidationof banking activity in this sector. Some went out of business or adapted


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their activities to become trading companies. By 1959, three large nativebanks dominated the rest; these were Hang Seng, Wing Lung, and KwongOn (the last became an authorized exchange bank in November 1959),who together accounted for about one half of the capital and reserves ofthe group (Ng, 1960: 309).18 The larger native banks acted ascorrespondents for the smaller banks, collecting their foreign exchangeproceeds for transfer to accounts abroad. The larger banks operatedclosely in line with the formal commercial bank sector, but the othersoperated on a more risky basis, tending to be undercapitalized and heavilyengaged in property speculation.

The differentiated market for native banks compared with ‘modern’commercial banks was reflected in the spread of interest rates. Despite thefact that the close relationship between native banks and their customershelped to reduce risk, high interest rates of around 16–24 per cent perannum were usual for loans, compared with six to eight per cent a year atmodern banks.

In a scramble for funds to take part in the financial boom of the late1940s, native banks offered interest on deposits ranging from six to ten percent compared with one to two per cent obtainable from commercial banks.In turn, they offered loans against gold or $US valued at free market rates,collateral which was not acceptable from the commercial banks, and thencharged higher interest for such facilities. By the late 1950s the increasedcompetition which small local banks faced from the aggressive branchingactivity of the mainstream banks forced them to continue to offer higherrates to attract deposits. By 1963 some banks paid as much as seven-and-a-half per cent on three-month deposits compared to four per cent paid by thelarger banks (Williams, 1963: 28). Higher deposit rates in turn forced themto lend at greater risk, but for higher nominal return. The insecurity thatresulted from this strategy (evident in periodic bank failures) then made itmore difficult for these institutions to attract deposits, widening the gulfeven further.

The high interest rates charged to borrowers also reflected the alternativeinvestments available. Much of the activity of these banks was related tospeculation in real estate, the stock market, and the gold market. During the1950s and early 1960s there were spectacular profits to be made in thesemarkets, especially in real estate. In 1958 the average yield from portfolioinvestments by native banks was about ten per cent, while the profit onforeign exchange dealing was about 15 per cent. Interest on forward goldtransactions was about five to ten per cent per annum in 1952–4. Theseinvestments had the added benefit of greater liquidity than loans, whichwere usually made for six months.

A fourth factor in the higher rates charged by native banks was thelack of competition from the mainstream banks for personal loans, sincethe collateral was often not adequate for modern banks. The fact thatthere was a market for the loans offered at such high rates by native banksshows there was considerable demand for such credit among the Chinese


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community. Commercial lending (related to international trade) wasmuch more competitive, however, and so the native banks charged onlyfive to six per cent on trade credit. Loans secured against stocks andshares were also available from the modern banks, which meant that theNative banks had to keep their rates in line. Borrowers using sharecollateral were charged a lower rate of 0.6–0.8 per cent per month, andloans were regularly made up to 80 per cent of the market value of thecollateral (compared with 50–70 per cent of the value of real estatecollateral).

Ng’s estimate of the combined balance sheet of ten native banks ispresented in Table 2. This captured the situation in 1959 before the stockmarket and real estate booms of 1960–4. Three leading banks accountedfor about half of the capital liabilities and 60 per cent of depositliabilities. The high volume of cash assets (21 per cent compared with 2per cent for the banking system as a whole19) was due to the foreignexchange business of these banks. Commercial advances were about onethird of other loans. About two thirds of loans were against real estate onterms of six months, and earned interest of 1–1.2 per cent per month.Investments in shares and real estate accounted for about nine per cent oftotal assets, compared with less than 3.6 per cent for other banks.

COMPARISON OF BANKING GROUPS

Figure 1 shows changes in the distribution of the number of banksbetween 1954 and 1965. The number of small Hong Kong-registeredbanks declined sharply in number, while 11 international banks enteredthe market in this decade. In 1954 the Far Eastern Economic Reviewidentified 27 active native banks, of which only 14 were still in businessby February 1960. Fourteen other Hong Kong-registered banks had goneout of business in the same period. By 1965 there were only nine more


TABLE 2

ESTIMATED COMBINED BALANCE SHEET OF TEN NATIVE BANKS

Liabilities Assets

Capital 40 Cash 50Deposits 167 Bankers’ acceptances 5Foreign Credits and guarantees on 30 Bills receivable 35

behalf of customersLoans 90Shares 6Real estate 15Bank premises and equipment 6Liabilities of customers in respect of 30

foreign credits and guarantees237 237

Source: Ng, 1960: 309.

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Hong Kong registered banks than there were foreign banks. This declinewas partly due to the introduction of new legislation. After the firstreading of the new Banking Ordinance in June 1963, for example, foursmall banks closed (Chan Man Fat, Chui Tai, Choi Kee and NationalCommercial and Savings Bank).

The Hongkong Bank dominated both loans and deposits, despite someerosion in their position over the period. In 1958, the Hongkong Bank had50 per cent of local deposits, although this share fell to 37 per cent by1962.20 Other large banks also felt the pressure of competition. The Bank ofEast Asia’s share of deposits fell from 8.7 per cent in 1955 to 3.8 per centby 1964, while the Shanghai Commercial Bank’s share fell from 4.7 percent to 2.4 per cent in the same period.21 By 1964, 27 of the other largestHong Kong-registered banks accounted for only 45 per cent of totaldeposits. The two largest were the Bank of East Asia (3.8 per cent) andHang Seng (10.8 per cent) while 13 banks each had less than one per centof the colony’s deposits.

Increased competition in the banking sector also eroded the dominationof the Hongkong Bank in lending. Their share of total advances fell from 45per cent to 34 per cent in the short period 1958–62.22 In 1963, the share ofHong Kong’s imports which passed through the Hongkong Bank’s inwardbills department also began to fall – an occurrence which was attributed to‘the aggressive measures adopted by one or two local Chinese banks andalthough we may not be losing business to these competitors we havewithout doubt fallen behind them in attracting new business’.23 However,the Hongkong Bank continued to dominate loans to domesticmanufacturing. By June 1966, the Hongkong Bank was responsible for 48


FIGURE 1

LICENSED BANKS IN HONG KONG

0

20

40

60

80

100

120

HK Registered Foreign Banks Beijing Registered TOTAL

num

ber

of b

anks

1954

1960

1965

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per cent of lending to the manufacturing sector but only 31 per cent of totalloans and advances (Jao, 1983: 561).

The contrast between western and Chinese banking was clear when theHongkong Bank took control of 51 per cent of the Hang Seng Bank inresponse to the banking crisis of 1965. At the end of 1964 the Hang SengBank showed a balance of almost HK$500 million in outstanding loans andadvances, of which over HK$400 million were secured loans andoverdrafts. The loans were overwhelmingly to small and medium sizedenterprises, and were secured against property. The Chinese bankingpractice of lending long based on short-term deposits, and using apotentially overvalued asset such as property as security, was shocking tothe Hongkong Bank when they interrogated the Hang Seng’s books. PEHutson, Assistant Manager and Chief Accountant of Hongkong Bank,advised that

While it is obvious that we cannot change Hang Seng from being aChinese Bank, run in the Chinese way, it is equally obvious that unlesswe can impress them with the vital necessity of changing theunacceptable banking practice of borrowing short and lending long,there will continue to be the ever prevalent risk that they will beunable to maintain the liquidity ratios required. We can but hope thatif we guide them with patience all may yet be well and our investmentsecured; but we MUST be firm.’24

By September 1965, Hutson reported that ‘from working with them, one hasthe feeling that the older generation are paying mere lip service, but that theyounger executive is willing to concede the necessity for change and thewisdom of conservatism in banking’.25

In evidence to the Radcliffe Committee on the Working of the UKMonetary System in 1956, Perry-Aldworth, London manager of theHongkong Bank remarked that ‘a good deal of the business done byindigenous banks would not be handled by us at any rate of interest’. Heexplained that this was due to ‘the nature of the business and theimpossibility of controlling many orientals’.26 The large banks preferredmore liquid assets, more formal collateral, and they lacked the personalcontact with small Chinese borrowers that helped smaller institutionsmanage risk.

The failure of many small Hong Kong firms to get access to bankloans was not merely due to the cultural gap between Western banks andChinese entrepreneurs. The Bank of East Asia was for most of the periodthe largest Chinese-controlled bank, but it was notoriously conservativein its lending practice, maintained very high liquidity ratios and tended toservice only large and well-established Chinese clients. E. Sinn noted that‘up to the mid-1960s, due to its historical background, the Bank [of EastAsia]’s clientele had been confined to a narrow social sector – well-established firms and individuals, both Chinese and foreign, with director indirect personal connections with the Bank’ (Sinn, 1994: 135). At the


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other extreme, the small banks were preoccupied with speculation on thestock market, the gold market, foreign exchange and in real estate duringthese decades because these sectors offered more competitive returns oninvestment than lending to industry (Ng, 1962: 316–7). As noted above,borrowing from small banks was expensive because of the lack ofcompetition and the shortage of funds due to high returns on alternativeinvestments. The small firm structure of Hong Kong’s manufacturingsector was also responsible for the weak links between banks andindustry.

Liquidity

The different character of the banking services provided by the differentcategories of bank is reflected in their balance sheets. Figures 2 and 3compare the liquidity ratios and loan/deposit ratios of the Hongkong Bank(the leading authorized bank), Bank of East Asia (a leading Chinesecommercial bank), and Hang Seng Bank (the leading native bank) with theaverage for all banks in Hong Kong. The average loan ratio of all banks inHong Kong is almost always above all the individual banks shown, and theliquidity ratio is lower. Most banks, therefore, were less liquid than themajor banks identified in these figures.27

The Bank of East Asia’s conservative policy is reflected in highliquidity ratios and the low ratio of loans to deposits. The Bank of Canton,Shanghai Commercial Bank and Chekiang First Bank all maintainedsimilar ratios (Jao, 1974: 194). Hang Seng’s liquidity declined consistentlyfrom 1958 and suffered a sharp drop in the banking crisis of 1965. Theloan/deposit ratio remained between 55 and 60 per cent until 1965, andthen decreased after it was taken over by the Hongkong Bank in that year.The ratios for the Hongkong Bank are based on consolidated accounts ofthe bank’s global operations. Figures available for 1958–62 show that theratio of loans to deposits by the Hong Kong branch alone was 10–15 percent higher than for the group as a whole, which would bring it moreclosely in line with the average ratio for all banks in Hong Kong.28 This isto be expected given the relative size of the Hongkong Bank compared toits competitors in the colony. The smaller native banks were known to havemuch lower liquidity ratios than other banks in this period, often below the25 per cent eventually required by the Banking Ordinance of 1965. Theliquidity ratio of the two Hong Kong-registered Chinese State Banks (PoSang and Nanyang Commercial), in contrast, ranged from 78 to 89 per centbetween 1961–72 because they did not engage in local lending (Jao, 1974:196).

Interrelationship between Banking Sectors

The various categories of bank in Hong Kong did not act completelyindependently. Indeed, as noted above, they were often in directcompetition or arranged cooperative relationships. Almost all banks heldbalances with each other and they were consolidated into groups within the


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FIGURE 2

LIQUIDITY RATIO OF LEADING BANKS

0

10

20

30

40

50

60

70

80

90

100

1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967

Per

cen

t HSBC Group

Bk of E Asia

Hang Seng

FIGURE 3

RATIO OF LOANS TO DEPOSITS OF LEADING BANKS

0

10

20

30

40

50

60

70

80

1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967

Per

cen

t HSBC Group

Bk of E Asia

Hang Seng

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Clearing House. Until 1962 this was restricted to 25 authorized banks thatalso acted as clearing agents for non-members. In May 1962, the systemwas streamlined to comprise 16 full members who acted for otherauthorized banks. Unauthorized banks of good standing could join thesystem on the recommendation of existing members. In this way ahierarchy of banks developed with the Hongkong Bank at the pinnacle.29

The Hongkong Bank was the central clearer and other banks were requiredto maintain working balances on deposit with the bank. In response to theincrease in banking business outside Hong Kong Island, a MongkokClearing House was established in April 1961 for banks operating on themainland.

Banks were also linked by the call money market that emerged in1959. By 1962 five authorized brokers intermediated among exchangebanks while other money brokers served the unauthorized banks. Thedemand for call money usually came from foreign banks who did nothold large balances in Hong Kong, but had intermittent need for liquidityto facilitate their trade finance. Surplus funds were usually found in thelocal Chinese banks. Call money rates reflected demand and supplyconditions in Hong Kong, but also conformed to money market rates inLondon, since most large banks had access to funds there. Between 1960and 1965 money at call with other banks increased from 14 per cent to 30per cent of the Chartered Bank’s total balance sheet assets in HongKong.30

A third relationship was that the largest banks, the Chartered and theHongkong Bank, operated as lenders of last resort to smaller banks whencrisis struck the system. This support was ad hoc and was not unlimited, aswill be seen in the cases discussed below. In the 1965 crisis, pledges ofsupport from the Chartered and the Hongkong Bank were not enough toforestall the collapse of two small banks.

EXPANSION AND CRISIS

The dramatic increase in banking activity in Hong Kong during the 1950sand 1960s is apparent in the statistics of deposits and advances. Figure 4shows the expansion in deposits, especially time deposits, from 1959. Bankdeposits increased from about 41 per cent of GDP to 70 per cent between1959 and 1964, which shows that the expansion of this sector faroutstripped even the dramatic growth of the economy as a whole in theseyears.31

Part of the increase was due to the dramatic expansion of bank offices,which spread the ‘banking habit’ in Hong Kong. From 1960 the number ofbanking offices in the colony began to accelerate, and the Banking AdvisoryCommittee took administrative action to limit the number of new licences.Successful applicants were unofficially required to have a minimum capitalof $5 million and demonstrate that they had adequate trained staff to operateas a bank (Tomkins, 1962: 13–14). The committee was powerless, however,


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to restrain the branching activities of banks that already had a licence, andby 1961 it was considered that Hong Kong had too many banks. TheTomkins Report claimed that excessive competition had driven some lessexperienced bankers to overextend themselves, offering unsupportable ratesto attract deposits with which to speculate for short-term gain (Tomkins,1962: 7–9).

Figure 5 shows that the number of licensed banks decreased slightly inthe decade before the 1964 Banking Ordinance, but the number of branchoffices expanded sharply from 1960. Whereas in 1960 banks were almostexclusively located in the Central district and Sheung Wan, by 1965 manybanks had extended into the growing population centres on the north coastof Hong Kong Island as well as in the Kowloon peninsula and the NewTerritories. Table 3 shows the impact of branching on the banking densityin Hong Kong. After falling slightly in the period 1954–8 due to thereduction in the number of licensed banks combined with an increase inthe population, the ratio of banking offices to population doubled from1959 to 1963. Table 4 shows the number of branches of some prominentbanks by the end of 1966. Of the 49 Hongkong Bank branches, 41 wereopened after 1959, while all but one of the Chartered Bank branchesopened after 1959.

The banking boom was caused by inflows of capital, increasedprosperity, and dishoarding of savings due to aggressive marketing asbanks sought funds to participate in the growth of the colony. It has beenestimated that half of the deposits in banks in Hong Kong in the 1950swere hot money from South-East Asia (Sit, 1983: 630).32 These depositorswere predominantly overseas Chinese who faced uncertainty in the volatile


FIGURE 4

DEPOSITS IN REPORTING HONG KONG BANKS 1955–68

0

2000

4000

6000

8000

10000

12000

1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968

HK

$ m

illio

n Demand

Time

Savings

Total deposits

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TABLE 3

BANKING DENSITY IN HONG KONG

Bank Offices per 10,000 peoples

1954 0.421955 0.401956 0.361957 0.331958 0.321959 0.331960 0.421961 0.581962 0.641963 0.661964 0.811965 0.82

Source: Jao, 1974: 21.

TABLE 4

BRANCH BANKING IN HONG KONG 1966

Number of Hong Kong Branches in 1966

Hongkong Bank 49Chartered Bank 17Far East Bank 13Hang Seng Bank 11Overseas Trust Bank 11United Chinese Bank 9Liu Chong Hing 8Foreign Banks 38Other 162TOTAL 318

Source: Far Eastern Economic Review, 27 April 1967, p.182.

FIGURE 5

BANK EXPANSION 1954–65

0

50

100

150

200

250

300

350

1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965

Licensed Banks

Total Offices

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political and economic climate of countries such as Indonesia, Vietnam andthe Philippines. Hong Kong’s low taxation, price stability, and the relaxedexchange control (which facilitated repatriation) were importantattractions.

The competitive atmosphere of the late 1950s led to rising interest ratesthat also attracted depositors from overseas and at home. Figure 6 showsmovements in three-month deposit rates for a leading authorized bank andfor a leading unauthorized bank (likely to be the Hongkong Bank and HangSeng). This shows that from mid-1960 to 1963 time deposit rates increasedsubstantially, exceeding the increases in the London Bank Rate, whichexplains part of the increase in this category of deposits.33

The rapid expansion of small banks on the strength of the booms in thestock market and the property market in 1959/61 contributed to the bankingcrisis of 1961. The Liu Chong Hing Bank was typical of this expansion. In1948 Liu Po-shan established the Liu Chong Hing Savings bank in theWestern District of Hong Kong to collect the savings and small deposits ofthe Chinese community. It was incorporated in 1955 as the Liu Chong HingBank with a registered share capital of HK$5m, of which $HK4m was fullypaid up. Three years later the registered share capital was expanded to$HK20m, of which $HK10m was paid up, and the first branch was openedin Mongkok. In 1960 alone, the bank opened further branches in CausewayBay, Kowloon City and Sham Shui Po.34

In June 1961, there was a run on the bank after it was weakened byproperty speculation and the liquidity squeeze that accompanied the stockmarket boom. The Liu Chong Hing Bank reported that ‘depositors weremisguided by malicious rumours’ (Ng, 1962: 67) which claimed that thepolice were investigating the bank and that its general manager had been


FIGURE 6

INTEREST RATE COMPARISON

Figure 6 Interest Rate Comparison

0

1

2

3

4

5

6

7

8

Ldn Bank Rate

Auth Bank

Non-Auth Bank

1957

1958

1959

1960

1961

1962

1963

pres

ent

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asked to leave Hong Kong. Under the pressure of depositors’ withdrawals,the Hongkong Bank and Chartered Bank were asked to support the bank,and in the end a debenture was taken with a specific charge on certainproperties. Eventually the run was ended after press and radio reports thatthe Hongkong Bank and the Chartered Bank were offering support.35 In fact,the problem was one of liquidity rather than solvency, but it was indicativeof some of the risky banking strategies that were being employed during theboom period. Investigation by Tomkins of the Bank of England revealedthat:

the trouble was caused by the [Liu Chong Hing] Bank getting too deepinto property (they have come out very much on the right side now)for its own account and for account of the former Managing DirectorLiu Po Shan who has since died. Shan dipped into the till to the extentof HK$8m leaving his cheque in the safe in place of the cash i.e.‘borrowing’ and not ‘stealing’. The bank in its returns counted Shan’scheque as cash!36

Liu Chong Hing Bank was allowed to continue trading with a reconstitutedBoard of Directors (including four members of the Liu family), but this didnot resolve the general banking situation.37

REGULATION

Banking Ordinance of 1964

The crisis of Liu Chong Hing fulfilled the gloomy predictions of theauthorities. A year earlier, the Financial Secretary had told a visiting Bank ofEngland official that ‘control over banks was quite ineffective and there wasa need to enjoin stricter standards if the risk of serious failure by some of theChinese banks was to be avoided’.38 After having to support Liu Chong Hing,the incoming General Manager of the Hongkong Bank told the Bank ofEngland that he was ‘strongly in favour of inspection as a means of securingproper standards in commercial banking practice since many Chinese bankswere dangerously illiquid’.39 The Bank of England worried that a morecomprehensive banking law would be unenforceable, or might have politicalrepercussions if it adversely affected native Chinese banks. Along with thesedifficulties, the Hong Kong government was also concerned that if it wererequired by law to intervene in the activities of a bank, this would involve thegovernment in financial responsibility to depositors.40

The local banking establishment, however, pressed for new legislation.In August 1961, Pullen of the Chartered Bank told a Bank of Englandrepresentative that ‘Chartered Bank were very disturbed about the illiquidposition of some of the Chinese banks in HK and he thought that if a runstarted on any of these institutions it might have serious repercussionsthroughout the banking system as a whole.’41 In December the Hong Konggovernment formally invited a Bank of England representative to studythe banking ordinance, and in February 1962 H.J. Tomkins arrived in


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Hong Kong to prepare new banking legislation. The Bank of England’schange of heart was no doubt influenced by the news that Oliphant(manager of the Hongkong Bank) had already begun to draft a newordinance.42

Tomkins’ draft departed from Oliphant’s on several important detailsthat illuminate the relationship between the different types of bank in HongKong.43 Firstly, unincorporated native banks were excluded completelyfrom Tomkins’ ordinance rather than allowed exemptions from parts of it,as was the case in the 1948 Ordinance. Tomkins believed that if theseinstitutions could not advertise themselves as banks, they would be unableto attract a significant number of depositors needing statutory protection.However in the final version of the legislation, the native banks licensedunder the 1948 Ordinance were again included, but were exempted frommost of the provisions of the new ordinance on the condition that they didnot use the title ‘bank’ and did not accept deposits in excess of $HK2million. This met political objections that the new law would eliminate mostof the native bank sector.

Secondly, Oliphant had included provisions regulating hours ofbusiness, interest rates and lending policy, but Tomkins preferred to leavethese details to be decided by a new association of bankers on which allbanks would be represented. He hoped that an inclusive association wouldpromote a greater sense of professionalism among bankers.44 Mostimportantly, however, he did not want the Financial Secretary to regulateterms of lending and interest rates since these duties were those of a centralbank. Nor were these powers within the desire or capabilities of theFinancial Secretary of the time, J.J. Cowperthwaite (Tomkins described himas ‘near doctrinaire “laissez-faire”’45). Tomkins reflected that ‘I wasreluctant to leave a lot of taps and levers lying around for inexperiencedhands to twiddle’.46 Interestingly, he found considerable support for a centralbank among Chinese banks in Hong Kong. He noted that

during my enquiries S.H. Ho and Q.W. Lee of the Hang Seng andPoon of the Ming Tak all advocated a central bank or at least somesort of mutual support association. Y.H. Kan of the Bank of East Asiafavoured the former while Y.N. Lee of the Canton Trust andCommercial Bank, and Lamson Kwok of the Wing On Bankadvocated the latter.47

In 1963 it was suggested that the Bank of England, the Hong KongGovernment and the Hongkong Bank were hostile to a central bank, thatmost expatriate banks were indifferent, and that the bulk of local Chinesebanks wanted one (Williams, 1963: 40).

Thirdly, Oliphant had included several clauses that discriminatedbetween local and foreign banks, which Tomkins avoided. As a‘genuflexion to the local Chinese banks who complained that foreign bankswere parasites who brought no money to Hong Kong’ Tomkins includedprovisions for minimum local capital in relation to local liabilities. In


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practice, however, foreign banks could borrow from or relend to their headoffices to comply with the requirements.

Tomkins’ draft banking ordinance was published in April 1962 and wasthen subject to further debate and negotiation with the banks to produce abill for the Legislative Council. Final legislation was delayed bydisagreements over the details, a lack of enthusiasm on the part of the HongKong government, and finally a volte-face by the banks after they hadagreed to the first version of the bill put before council in June 1963 (King,1985: 615).

The main bones of contention were rules that sought to constrain banksfrom activities which had contributed to the banking crisis of 1961: lendingto close associates and speculating in real estate and the stock market. TheChinese banks objected strongly to Tomkins’ requirement that the value ofinvestment in real estate and shares should not exceed 25 per cent of paid-up capital and reserves.48 Restrictions on unsecured loans to businesses inwhich the directors of a bank had an interest particularly exercised theHongkong Bank, whose directors were on the boards of over 100 localcompanies.49 Before publishing his draft ordinance, Tomkins reported that‘Saunders [Hongkong Bank] was not very happy but reluctantly said that Imust, of course, recommend what I thought fit’.50

In the end, these unsecured advances were grouped with investment inreal estate and shares as a set of assets that could not exceed 55 per cent ofcapital and reserves with an individual limit of 25 per cent for any oneelement of the group. The new bill was submitted to the Legislative Councilin September 1964 and came into force in December, with a one-year graceperiod to allow banks to conform to the liquidity requirements.

Interest Rate Agreement

The 1961 crisis prompted moves for self-regulation as well as governmentregulation, since aggressive deposit-taking was identified as an importantfactor in the crisis. The heightened competitive atmosphere of 1959–61 hadtempted smaller banks to offer extraordinarily high interest rates to attractdeposits which then required them to engage in high return but also riskyinvestments. The general rise in interest rates was also deemedunfavourable to local industry since it inflated the rates on loans.51

In September 1961 the Exchange Banks’ Association initiated talksamong authorized and unauthorized banks to contain interest-ratecompetition. An initial proposal of graduated rates within a range of one percent was presented in October but was rejected by the smaller banks, whichwanted a wider spread. Subsequent proposals were also rejected, but inDecember the unauthorized banks agreed voluntarily to reduce their fixeddeposit rates to a maximum of 6.5 per cent. In March 1962 the authorizedbanks also agreed to lower their rates temporarily.

The unauthorized banks were not the only obstacles to an agreement.Some smaller foreign banks were not satisfied with the competitive edgeenjoyed by the Chinese banks under the scheme.52 The large number of


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banks involved also prolonged the negotiations. At the end of April 1964Oliphant reported that

The agreement on interest rates appeared to be nearing signature,when Hang Seng who had been negotiating as representative of manysmaller banks, announced that they had no power to commit the othersand had not kept them informed of the progress of the talks, so thefinal outcome is still in doubt.53

Hong Kong’s financial secretary also opposed an agreement on the groundsthat it unwisely hampered free competition. Oliphant noted that‘Cowperthwaite seems to be strongly opposed to the whole idea, largely forsuch reasons as that “87 individual decisions are more likely to be right thanone central decision” etc. We have removed his misapprehension thatcoercion was being used to get people to join in.’54

In the end, a scheme was finally agreed in July 1964 which establisheda ladder of rates with ‘basic’ interest rates offered by foreign banks and theleading Hong Kong banks, and a graduated scale for other categories ofbanks stepping up by a half of one per cent on the basic rate.55 It wasdesigned to enable smaller banks to compete for deposits with the largerbanks, but also to constrain such competition to avoid upward drift ininterest rates. The system, shown in Table 5, formalized the grouping ofHong Kong’s banks.

The rate spread continued to be controversial. As an uncharacteristicallylarge Chinese bank, Hang Seng was asked to quote a rate between theforeign and local banks but it refused.56 Once the Hongkong Bank hadcontrol of Hang Seng in April 1965, its rates were lowered to the foreignbank level

in the hopes that this would facilitate an agreement to reduce thedifferentials between the various categories of banks. This wasunsuccessful. An approach was then made to the Group A1 banks tovoluntarily agree to quote below their permitted maximum and it wasmade clear that if this was not possible we reserved the right toincrease Hang Seng’s rates to those permitted for their category.57

The manager of Hang Seng, Q.W. Lee, objected strongly, complaining that‘as to the interest rate, I am quite sure you understand this is a matter of


TABLE 5

THREE-MONTH DEPOSIT RATES (% p.a.)

Foreign Special A1 A2 B1 B2

1 July 1964 4.5 – 5.25 5.75 6 6.25

July 1965 4.5 – 5.25 5.75 6 –

March 1966 5.5 5.75 6 6.375 6.75 –

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survival of the Hang Seng Bank and I wish to put on record our strongdissent of having to quote the same rate as the HongKong Bank.’58

In May 1965 three European banks threatened to drop out of theagreement and thereby managed to get the spread of rates between theChinese and Foreign banks narrowed by a quarter of one per cent. In March1966 the advantage of the largest Chinese banks was agreed to be unfair andHang Seng, Bank of China, Bank of East Asia, Nanyang Commercial Bank,and the Bank of Canton were identified as a ‘special category’ of bankswhich offered a quarter of one per cent above the foreign banks and aquarter per cent below other Chinese banks. These changes in categoriesreflect the increasing competition among the various classes of bank. Thegrowth of some Chinese banks in the early 1960s had brought them muchcloser to the modern commercial banks.

CONCLUSION

Banking groups persisted in Hong Kong in the early 1950s because themarket for banking services was segmented partly along cultural lines, butalso by the nature of the business. Large, well-established borrowers (bothChinese and Western) had relatively easy access to the funds of banks. Therewas also considerable competition in the highly profitable business of foreignexchange and trade finance. Bank loans for small-scale industry, however,were primarily found from the Chinese banks on terms that would not havebeen acceptable to the larger Western-style banks. The smaller banks andnative banks had a competitive advantage through their close links to theircustomers which helped to overcome information asymmetry, and alsoallowed them to offer a highly personalized service to attract their business.In the increasingly competitive atmosphere of the late 1950s however, manyof these banks found themselves illiquid both because they faced difficultyattracting deposits, and because of their speculative activities.

Over the course of the period 1945–65 the banking system of HongKong underwent profound changes due to the rapid expansion in theprovision of banking services. This process eroded the distinction betweenthe various banking groups in Hong Kong due to increased branchingactivity by the large banks (including foreign banks), the growth of smallbanks and two sets of banking crises. The institutional responses to the 1961crisis were weak because they did not keep pace with this changingenvironment and because they lacked government support. The interest rateagreement unsuccessfully sought to compartmentalize the banking groupsthat had existed in the 1950s. The negotiations were protracted and theagreement was not in the end very stable.

The 1964 Banking Ordinance also suffered from delay due to prolongednegotiation with the banks and it proved inadequate to ensure the stabilityand prudence of Hong Kong banking. The series of amendments necessaryin 1967 and 1969 to shore up the system reveal its weaknesses. The 1967amendments increased the minimum capital from HK$5m to HK$10m,


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excluded balances with other banks from specified liquid assets,strengthened the auditing process, required banks to maintain a provisionfor bad or doubtful debts, and increased the supervisory powers of theBanking Commissioner as separate from the Financial Secretary. Thisshows that undercapitalized, illiquid and even fraudulent banking was noteliminated by the 1964 Ordinance. In 1967 32 banks still had paid-upcapital below HK$10m, and some were found to have appointed unqualifiedauditors to certify that their balance sheets were accurate.59 Failures of smallbanks led to banking crises in 1961, 1965, and again in 1982/3. The bankingcrisis of 1983–6 can be traced to runs on the Hang Lung Bank in 1982/3.Jao blamed the persistence of family ownership combined with inadequateregulatory control for the weakness of the banking system in the 1980s (Jao,1989: 15-48). Weak regulation, which allowed the persistence of traditionalChinese banking, may have served the colony’s commercial sector, but itcame at the high cost of instability for the system as a whole.

ACKNOWLEDGEMENTS

The author would like to thank the Bank of England and the HSBC Group Archives London, foraccess to their records. The British Council and British Academy provided grants to support thisresearch.

NOTES

1. Far Eastern Economic Review, 19 Nov. 1947, p.596.2. The official definition was an institution which engaged ‘in the receipt of money on current

or deposit account or in payment and collection of cheques drawn by or paid in by a customeror in the making or receipt of remittances or in the purchase and sale of gold or silver coinor bullion’.

3. The committee was comprised of the Financial Secretary, the Accountant General,representatives of two banks (Hongkong Bank and the Bank of East Asia until 1964) and anaccountant. Kan Tong-po, Chairman of the Bank of East Asia was the only Chinese to serveon the committee until his death in 1964.

4. Speech by J.J. Cowperthwaite, 9 July 1963, Hong Kong Legislative Council, p.211.5. The Exchange Banks’ Association was established in 1897. Chinese bankers made up the

less formal Chinese bankers’ association, which met regularly to exchange information. TheBank of East Asia was the most prominent member of this group.

6. See, for example, comments by H.J. Tomkins in a letter to R.H. Heasman of the Bank ofEngland, 17 Feb. 1962. Bank of England Archives (hereafter BE) OV14/21.

7. Far Eastern Economic Review, 11 April 1963, p.81.8. Minutes of the London Consultative Committee, 13 June 1963. Chairman’s Papers Carton

No. 4, HSBC Group Archives (hereafter HSBC). 9. S.W.P. Perry-Aldworth (Senior London Manager, HSBC) to Stewart (Manager, HSBC Hong

Kong), 15 June 1959. Chairman’s papers Carton No 4, File on BBME 1959, HSBC.10. J.A.H. Saunders (chief manager, HSBC Hong Kong) to Morse (HSBC London), 18 Sep.

1962. Chairman’s Papers Carton No. 5, Correspondence of A. Morse, HSBC. 11. Central Bank of China, Bank of China, Bank of Communications, Farmers Bank of China,

Central Trust of China, Chinese Postal Remittances and Savings Bank, KwangtungProvincial Bank, Provincial Bank of Kwangsi, Provincial Bank of Fukien. Far EasternEconomic Review, 1 Dec. 1949, pp.702-3.

12. Telegram from Grantham to Secretary of State for the Colonies, 9 June 1948. Public RecordsOffice, London, Treasury Files (hereafter PRO, T) T236/2033.

13. The political problems of discriminating against small Chinese banks is also noted inWilliams,1963.


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14. For an account of the development of native banks before 1939 see Chesterton and Ghose,1998:19–21.

15. ‘The Gold and Silver Exchange of Hongkong’ by a Chinese Banker, Far Eastern EconomicReview, 24 June 1954, p.803.

16. Far Eastern Economic Review, 19 May 1948, p.490.17. Far Eastern Economic Review, 4 Feb. 1948, p.100.18. Other native banks included in Ng’s report were Dao Heng, Hang Lung, Tai Sang, and Po

Sang (which all reorganized into modern banks) and Wing Hang Cheong Kee Bank, LuiHing Hop Cheung Kee Bank, Chan Man Fat Bank.

19. Figures for the banking system are based on 59 reporting banks at the end of 1961. Smallerbanks are excluded. Hong Kong Statistics 1947–67, Census and Statistics Department, HongKong, 1969.

20. Chairman’s Papers, Carton No. 5, Tomkins Report. HSBC. Published deposits for the HSBCGroup are consolidated accounts, rather than their share of deposits in Hong Kong.

21. Figures from banks’ balance sheets. By 1977 the Hongkong Bank, Hang Seng, ShanghaiCommercial, and Bank of East Asia were the four largest banks registered in Hong Kong (inthat order).

22. Chairman’s Files, Carton 5, Tomkins Report, HSBC. By 1969 the Hongkong Bank’s sharehad fallen to 26.5 per cent. (Jao, 1983: 560).

23. Report on the Results of Hong Kong Office and Agencies for 1963, GHO201, HSBC.24. Note by P.E. Hutson, 15 July 1965. Emphasis in the original. GHO 322 Hang Seng 1965,

HSBC. 25. Hang Seng Bank Ltd Progress Report by Hutson, 20 Sep. 1965. GHO 322 Hang Seng 1965,

HSBC.26. Committee on the Working of the Monetary System, Minutes of Evidence, Q 4637-8, p.327.

These remarks may not have referred specifically to Hong Kong.27. Interestingly, the ratio of loans to deposits was 5–10 per cent higher in Singapore than in

Hong Kong in the first half of the 1960s (Jao, 1974: 118).28. File on Tomkins Report, Chairman’s Papers Carton No. 5, HSBC.29. The Clearing House was located on the fifth floor of the Hongkong Bank building.30. Balance Sheet of Hong Kong Branch of Chartered Bank, Guildhall Library, MS31519/308

and MS31519/343.31. Until 1961 only the authorized exchange banks were included in these statistics, and from

then only banks with a minimum level of capital resources. Since the excluded banks weregenerally very small, it can be assumed that their gradual inclusion accounts for only a smallpart of the increase in recorded deposits. The addition of ten banks from June to September1961 was responsible for an increase of only $200m.

32. The 50 per cent estimate was also cited for the 1960s in ‘Chinese Boomerang’, TheEconomist, 18 Nov. 1967, pp.26–30. In June 1965 the Banking Commissioner stated that ‘thegreater part’ of Hong Kong’s bank deposits came from outside the colony. South ChinaMorning Post, 12 June 1965. Cited in Stammer, 1968: 120.

33. About a quarter of time deposits with banks were Government funds. 34. Liu Chong Hing Bank Ltd 40th Anniversary, Hong Kong 1988.35. Minutes of the London Consultative Committee, HSBC, 13 July 1961. Chairman’s Papers

Carton 4, HSBC.36. Letter from Tomkins (in Hong Kong) to Heasman (London), 1 March 1962, BE OV14/21.37. Liu Chong Hing Bank became an authorized exchange bank in 1967 and in October 1973

Mitsubishi Bank bought a 25 per cent interest in it. By 1987 Liu Chong Hing had assets of$HK7 billion (Liu Chong Hing Bank Ltd 40th Anniversary).

38. Letter from Hallows to Haslam after a visit to Hong Kong, 3 June 1960. BE OV14/21. 39. Memo by Hallows of a conversation with J.A.H. Saunders, 15 June 1961. BE OV14/21.40. Ibid.41. Letter from P.L. Hogg to Heasman, 24 Aug. 1961. BE OV14/21.42. Cowperthwaite (HK) to Tomkins (London), 24 Jan. 1962. BE OV14/21.43. The following account of the difference between the Oliphant and Tomkins drafts is based

on the covering memo to the draft Banking Ordinance by H.J. Tomkins for the FinancialSecretary, Hong Kong, 9 March 1962, BE OV14/21, and HJ Tomkins, ConfidentialSupplementary Notes on draft Hong Kong Banking Ordinance, 1 April 1962. BE OV14/ 22.

44. Letter from Tomkins to Heasman, 10 April 1962. BE OV14/22. This was not accomplisheduntil 1980 when the Hong Kong Association of Banks replaced the Exchange Banks’Association.


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45. H.J. Tomkins, Confidential Supplementary Notes on draft Hong Kong Banking Ordinance,1 April 1962. BE OV14/22.

46. Ibid.47. Tomkins to Cowperthwaite, 12 July 1962. BE OV14/22.48. Letter from Q.W. Lee, Manager of Hang Seng Bank, to H.J. Tomkins, 18 June 1962. BE

OV14/22.49. Letter to Financial Secretary, HK, from Oliphant, 23 June 1962. File on Tomkins Report,

Chairman’s Papers Carton No 5, HSBC. See also memo from Tomkins to Watson (Bank ofEngland), 20 Sep. 1962. BE OV14/22.

50. H.J. Tomkins, Confidential Supplementary Notes on draft Hong Kong Banking Ordinance,1 April 1962. BE OV14/22.

51. Chairman’s Statement, HSBC Group Annual Report, 1961.52. Minutes of the London Consultative Committee of HSBC, 10 Dec. 1964. Chairman’s Papers

Carton 4, HSBC.53. Oliphant to Saunders (in HK), 24 April 1964. R.G.L. Oliphant’s private files 1963–5,

Chairman’s Files Carton No. 4, HSBC.54. Oliphant to Saunders (in HK), 24 April 1964. R.G.L. Oliphant’s private files 1963–5,

Chairman’s Files Carton No. 4, HSBC. Oliphant’s frustration with the Government’s inactionwas expressed publicly in an article for the Far Eastern Economic Review, 22 April 1965, inwhich he remarked: ‘It is a pity that the Government regard with suspicion any advice givenby bankers, as they thereby deny themselves the full benefit of the enormous fund oftechnical knowledge and experience which exists amongst the representatives of about 90banks’ (p.179).

55. The state-controlled Chinese banks and banks incorporated in Malaya were part of the A1group. There were no restrictions on deposits over 12 months.

56. Memo by M.G. Carruthers, 12 June 1965, GHO322, HSBC.57. Ibid.58. Q.W. Lee to M.G. Carruthers, 15 April 1965. GHO322, HSBC.59. Far Eastern Economic Review, 27 April 1967, pp.187–9.

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Restructuring in Hong Kong and Singapore. Boulder, CO: Westview Press.Committee on the Working of the Monetary System, Minutes of Evidence (1959), London: HMSO. Ghose, T.K. (1987), The Banking System of Hong Kong. Singapore: Butterworths.Jao, Y.C. (1974), Banking and Currency in Hong Kong. London: Macmillan.Jao, Y.C. (1983), ‘Financing Hong Kong’s Early Postwar Industrialisation: The Role of the

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Institute.Ng Kwok-Leung, ‘More Banks in Hongkong’, Far Eastern Economic Review, 12 April 1962,

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banking groups in hong kong, 1945-65

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