The last barrier to competitiveness in the banking field has finally fallen with the decision of the Hong Kong Monetary Authority to end the banking cartel.
The move is a breakthrough for the Consumer Council, which has conducted a long and determined campaign against it. And even though it will be up to two years before customers feel the full benefits, the ending of this much-criticised system is another step along the road to the genuinely free market that the city claims to be.
For years the Government resisted any move to break the power of the banks. The authority expressed concern when smaller banks cut lending rates to attract house buyers in an escalating mortgage price war two years ago. It claimed major banks might be forced to follow suit, and the cheaper rates could put the stability of the financial system at risk.
Now an 18-month study by KPMG Peat Marwick appears to have convinced the authorities that healthy across-the-board competition will not unbalance a sector that has long been able to write its own rules. Instead, it is the Consumer Council that worries about the prospect of a free-for-all without a safety net to protect the smaller operators.
Not only will there be competition in interest rates, with the prospect in two years' time of competitive interest rates on cheque accounts, but other inducements might be on offer, from a cut in service charges to free gifts.
However, 'free' is a relative term, and banks accustomed to large profit margins will also be working on ways to pass a proportion of costs back to their clients. Some may impose a charge on each cheque cashed, and in the battle to attract higher deposits, over-the-counter services could be withdrawn from small investors, who might be made to conduct transactions through ATM or other mechanical means.
