The Asian crisis has forced banks in Hong Kong to become more efficient and diversified, hopefully ensuring a brighter future for the industry as a whole, the Bank of East Asia said. The bank said in a report the crisis had exposed the weaknesses in the SAR's banking industry - years of negative real-interest rate environment had made banks rely too much on short-term deposits to finance their long-term retail mortgages. This has created a serious maturity mismatch for banks' assets and liabilities, making them very vulnerable to liquidity problems. The report pointed out that the rapid growth in the property market had seen property-related loans grow from 33 per cent of all banks' loans in 1990 to a peak of 44 per cent in the first quarter of this year, exposing the system to greater risk of property market fluctuations. Over the years, foreign banks have been acting as risk-takers - borrowing the excess Hong Kong dollar funds from local banks in the form of interbank loans and channelling these funds to borrowers other than home-buyers. They have started to reduce their exposure to Hong Kong since the outbreak of the Asian crisis, creating a vacuum in the credit market. At the same time, investors' heightened caution towards local-currency investments has dampened the demand for certificates of deposit (CD) issued by local banks, making them less able to raise funds from the CD market. The Bank of East Asia expects the industry's credit crunch to persist. Banks would experience slow profit growth, modest loan growth and rising non-performing loans, it said. It praised the Government's tight supervision of the industry, believing it helped to ensure that institutions stayed reasonably sound. It said the government-owned Hong Kong Mortgage Corp - which buys mortgages from banks - helped banks to stay liquid. The sharp correction in property prices will make banks less dependent on property related loans and lead them to seek new business opportunities, such as expanding into the mainland. The report reiterated chairman David Li Kwok-po's stance of advocating a deposit-insurance scheme in Hong Kong, saying it would help to boost depositors' confidence.