The authority made 303 on-site examinations last year - a 40 per cent rise on 1997, its annual report showed.

It took action against the two institutions under Section 52 of the Banking Ordinance after they were found to have breached the minimum 8 per cent capital-adequacy ratio and 25 per cent liquidity-ratio requirements.

To protect the interests of depositors and other creditors, restrictions were imposed until the institutions could meet the requirements.

'In neither case did depositors or other creditors suffer any loss,' HKMA deputy chief executive David Carse said.

Besides these two cases, three foreign banks and two deposit-taking companies breached the liquidity ratio last year, while one deposit-taking company breached the capital-ratio requirement.

There were also eight breaches of large exposure requirements and five breaches of rules on connected lending.

However, Mr Carse said these cases were of a technical nature and the breaches had been rectified.

Last year's economic turmoil caused a substantial increase in provisions and a sharp drop in profits for the banking sector.

Bad debt charges for SAR banks rose from 0.15 per cent of total assets in 1997 to 0.64 per cent last year.

Loans overdue for three months increased to 4.03 per cent at the end of last year, against 1.58 per cent at the end of 1997.

Credit card loans overdue for more than three months rose to 1.16 per cent of total receivables at the end of last year, compared with 0.64 per cent in 1997.

'As the banking sector felt the effects of the Asian financial crisis, monitoring the impact of the crisis on the sector as a whole and on individual authorised institutions was a major priority,' Mr Carse said.

'In particular, greatly increased attention was paid to local banks' asset quality and provisioning.'