The Hong Kong Monetary Authority has stepped up the pressure on banks to seek mergers and alliances ahead of expected increased competition. HKMA chief executive Joseph Yam Chi-kwong yesterday reaffirmed the authority's desire for a leaner, stronger banking sector. 'The clear global trend is towards consolidation among banks,' he told the Hong Kong Institute of Bankers. 'As banking business as a whole increases, the number of banks declines. 'Banks in Hong Kong should be heading towards consolidation.' Mr Yam urged banks to consider mergers and alliances. 'Many of today's banking giants started off as quite small banks, and grew to their present size through mergers and acquisitions,' he said. Mr Yam said consolidation in the SAR's banking sector was too slow, noting there had not been a single merger in the past few years. In the United States, the number of commercial banks shrank 17 per cent from 1993 to 1997, he said. The number of banks in Britain, Germany, Australia and Japan combined fell 7 per cent during the same period. Mr Yam cited the International Monetary Fund's recent report on Hong Kong that said 'consolidation in the domestic banking system . . . will be necessary'. However, many of Hong Kong's family-owned banks were resisting consolidation, he said. The owners of these banks were reluctant to give up their birthrights, he said. Also, many local banks had high capitalisations, giving them little reason to merge. 'Individual banks will not respond quickly enough to the challenges that lie ahead,' Mr Yam warned. 'When change is eventually forced upon them by market pressure, the impact will be rather brutal.' Mr Yam said local bankers should recognise the threat from globalisation and the development of electronic banking. The deregulation of interest rates in the next two years would increase competition among Hong Kong's banks, he said. This could finally cause banks to consider mergers and alliances, he added. Intensive competition would force banks to seek more capital to upgrade their technology and enable them to offer telephone and Internet banking. 'Smaller banks will find it increasingly difficult to flourish without these advantages, and so the pressure to grow will inevitably intensify,' he said.