Virtual banking close to reality
Hong Kong banking is set to enter a new era with a probable end-of-year launch of the first virtual bank - delivering banking services almost entirely on the Internet or other electronic channels.
Hong Kong Monetary Authority executive director Raymond Li Ling-cheung yesterday said the authority had received several applications for e-banking licences.
'If the authority approves some of these applications, we will see the setting up of the first virtual bank by the end of this year,' Mr Li said, describing it as a big step forward.
Virtual banks let customers use the Internet or other channels, such as mobile phones, to undertake a range of banking activities - such as transferring funds between accounts, applying for and receiving loans, making payments, and applying for credit cards.
Hong Kong is considered to have been relatively slow to develop Internet banking compared with countries such as Britain and the United States.
Mr Li did not identify the applicants, but market speculation has pointed to Internet ventures by Bank of East Asia and Dah Sing Bank.
Both have expressed interest in e-banks and both have two banking licences due to earlier mergers with other banks. This means they could convert one into a licence to run a virtual bank.
Under e-banking guidelines issued by the HKMA, a virtual bank cannot be a newly established entity but can only be set up through the conversion of an existing locally licensed bank.
Another method would be to upgrade existing restricted licensed banks or deposit-taking companies into virtual banks. The guidelines also require a locally incorporated virtual bank to be at least 50 per cent-owned by a well established bank or financial institution.
Parent banks will play an active role in ensuring their virtual banks are run in a prudent manner, and should provide additional capital to the virtual bank when needed.
The guideline stipulates a local parent bank must have assets of more than HK$4 billion.
The guidelines also say virtual banks will need to maintain at least one bricks and mortar outlet in Hong Kong to provide a point of contact with the bank for both customers and the HKMA. An overseas virtual bank wishing to establish business in Hong Kong, must come from a country with established regulatory framework for electronic banking.
Overseas banking groups would have to have assets of more than US$16 billion.
Mr Li said the HKMA would issue more guidelines this month relating to security issues involved in Internet banking.
The authority would also issue rules regarding regulation of overseas banks placing advertisements via the Internet to attract local deposits.
Meanwhile, he said the HKMA would this month issue a consultation paper on setting up a credit reference agency to collect credit information on small and medium-sized companies.
The information is important in assisting banks to offer loans to such companies. Companies have recently complained about the lack of funding being made available to them by the bigger banks.
The three-month consultation will focus on ways to ensure the security of customer information.
Banks have expressed worries that the agency would leak customers' business information to rival lenders.
Mr Li said this problem would be tackled in several ways - including bringing the agency under the Government's control, or introducing new rules to prevent leakage of information.
If it was decided to proceed with the agency, Mr Li predicted it would be set up next year.
According to HKMA surveys released two weeks ago, many banks are less willing to lend to smaller enterprises than to big players due to a lack of transparency. A credit reference agency is seen as a means to resolve the problem.
