GUIDELINES on the use of general provisions for bad debts proposed by the Hong Kong Monetary Authority (HKMA) could create an uneven playing field for domestic and foreign banks, according to David Li Kwok-po, chief executive of the Bank of East Asia. 'As far as I know, Hong Kong will be the first place [to have such guidelines if the suggestion materialises].' 'Hong Kong is an international market. If only banks in Hong Kong need to do this, but not banks registered in other places, then it is not that good for us.' Mr Li said he was not sure whether such guidelines would mean that banks would have to set a minimum percentage of their loan portfolio for bad debt provisions. However, competitiveness should be the prime consideration while HKMA pondered such a move, he said. Mr Li was responding to a proposal made by HKMA deputy chief executive David Carse last week. Mr Carse warned the banking sector that its impressively low bad debt ratio of 0.05 per cent of loan portfolios would only increase, considering the present unfavourable environment in Hong Kong. He said the HKMA, the de facto central bank, might issue guidelines on the use of general provisioning. But Mr Carse stressed it was not likely the HKMA would set a strict level of minimum provisions for bad loans. The average provision level of banks is about 0.8 per cent of the total loan portfolio at present. Concern about the provision level has been triggered by several factors which have led to a tougher banking environment in Hong Kong: in particular, the gradual deregulation of interest rates and the recent slump in the property market. 'Lending for building, construction, property development and investment showed a slowdown in 1994 [rising by 18 per cent against 27.9 per cent in 1993],' according to the latest annual report of the HKMA. Meanwhile, Mr Li said he would not recommend to the board of the Bank of East Asia that it participate in the upcoming land auction, because he expected land prices to rebound. The bank came under the spotlight when it joined the bidding in the most recent land auction. Mr Li said he was told by Mr Carse that the HKMA was determined to keep the residential mortgage ceiling at 70 per cent despite an easing of prices for residential units. He quoted Mr Carse as saying that the property market was still exposed to volatility and the ceiling was necessary.