The Bank of East Asia has warned that Hong Kong's banking sector is set to undergo a widespread shake-out. Chairman and chief executive David Li Kwok-po said the regional financial turmoil had reinforced his belief that the bigger operations were more likely to survive. He called for more co-operation between smaller banks in a bid to strengthen their competitiveness against the industry's giants. Mr Li believes talks for mergers and acquisitions among local banks have begun and could be concluded later this year. He believes that some small deposit-taking companies could team up with larger institutions, resulting in a flight of businesses from the small players to those perceived to have better services. A few deals last year that resulted in changes in majority ownership of small banks had highlighted the trend, he said. They included Cosco Pacific's acquisition of a 20 per cent stake in Liu Chong Hing Bank and Ka Wah Bank's top-management reshuffle, which has been widely perceived as part of its preparation for further acquisitions. Mr Li envisages more changes within the Bank of China group, which might see members demerge from the group or float on the Hong Kong stock exchange. He advocates the establishment of a central credit bureau and deposit insurance programmes to provide a more level playing field for smaller players. The central credit bureau plan, which would help checks on an individual's credit worthiness for credit cards or personal loans, has been around for two years but has been opposed by large banks. Mr Li said the body would help banks control bad-debt levels and boost Hong Kong's position as an international finance centre by reducing the risk of doing business. Mr Li said the Government should re-consider setting up a deposit insurance system as it would boost depositors' confidence and minimise the chance of bank runs. The deposit insurance proposal surfaced in 1991 after the collapse of the Bank of Credit and Commerce ruined thousands of depositors, but it floundered in the face of opposition from large banks.