'Banks, in their effort to apportion costs more precisely, may start charging those who only have a small balance extra fees for maintaining an account.'

The first phase of interest rate deregulation, which started in July, involved the removal of the interest rate cap on time deposits with a maturity of less than seven days, completely deregulating time deposits.

Following this, some banks introduced new overnight deposit accounts, paying interest above the savings account rate but the response was, in general, muted. The final phase will see the removal of both the interest rate cap on saving accounts and the prohibition of interest on current accounts.

Mr Topping accepted that the changes in interest rate rules could end up hurting consumers rather than helping them.

'We have continually stressed to the Consumer Council that this is not a no-lose situation. Banks will have to look very hard at their charging structure because the last thing we want to see is people being priced out so they cannot afford banking services,' Mr Topping said.

With bank accounts increasingly being seen as an essential requirement in today's society, it is likely people with smaller balances will be forced to look at alternative types of accounts.

'There is reason to think there will be low-cost, no-frills accounts that people with smaller balances will be able to use,' Mr Topping said, adding that he expected smaller banks to try and undercut large ones in an effort to lure customers.

The Internet could yet play a major role in day-to-day banking, with banks able to offer cheaper services online.

Mr Topping warned that consumers might find themselves being 'pushed' on to the Internet.

'If banks are going to be able to provide low-cost services, they have got to migrate their customers to a low-cost delivery channel, such as the Internet.'

This, he said, would result in something of a contradiction, with low income individuals having to go online to do their banking, when they might not be able to afford Internet access.

Customer service offered by larger banks also came under fire from Mr Topping.

'Consumers have had a raw deal in Hong Kong,' he said, adding that banks needed to improve their efforts to offer consumers good quality service.

The current review of the Code of Banking Practice will aim to ensure that banks provide customers with the kind of service taken for granted in other countries.

'This review will make the code more user-friendly; it will respond to large areas of weakness in customer service that customers have identified,' Mr Topping said.

These areas include, in particular, credit card issues, with concerns having been raised about the expression of interest rates and the lack of transparency in the terms and conditions of credit card agreements.

In a recent court case, for example, the judge ruled that certain provisions in a credit card agreement were unconscionable and therefore could not be enforced. The provisions entitled the lenders to reclaim from debtors the full legal costs and expenses of recovering overdue debts.

Mr Topping believes it is in the interests of the banking industry that such incidents do not recur.

However, he does not see any new regulations being enacted, and thinks that the existing Government policy of issuing banking guidelines is sufficient.

Mr Topping's comments come as the HKMA enters into the final phase of its reform programme of the banking sector, a process that began in 1998 following a Banking Sector Consultancy Study by KPMG and Barents.

The banking sector reforms undertaken by the Government are proving to be a difficult balancing act, with the HKMA having to carefully weigh up the interests of banks, consumers and other interested parties.

Deposit insurance is a particularly controversial issue, and larger banks have strongly criticised the Government's consideration of this form of consumer protection.

A report by Arthur Andersen into the need for deposit insurance will be published by the HKMA next month, and a public consultation period will follow.

Mr Topping said that deposit insurance might be needed to bolster consumer confidence in the banking sector, and cited the two bank runs of 1998 as evidence of this.

However, larger banks have continually asserted that any moves to provide such insurance will only result in smaller, less prudent banks entering the market and engaging in more risky activities.

These smaller banks could also adopt aggressive pricing of deposits, to the chagrin, again, of the larger players.

Mr Topping believes that these fears are largely unfounded.

Consumers will, though, have to bear the costs of any deposit insurance scheme, although Mr Topping claimed the increase in prices would be insignificant.

'People are going to be surprised at how low the numbers are, and this could be a persuasive factor,' Mr Topping said.