HONGKONG Bank is actively beefing up its treasury fleet to include more capital-market expertise, in response to top corporates shifting their funding preference from banks to the capital markets. Big corporates' recent fund-raising from the capital markets has prompted commercial banks to reassess their lending role. Instead of going through the traditional channel of bank borrowings, it has become the trend for top local companies to diversify their funding sources by directly entering the local and international capital markets by issuing bonds. Fearing they will be dis-intermediated by the change, banks are altering their strategy to catch up. Hongkong Bank regional treasurer Chris Pavlou said: ''Because these big guys are going to the market, they need someone to originate, place the issues and arrange other treasury-related products. These are the capabilities we are building up.'' Closer co-operation with Wardley, the bank's local merchant-banking arm, would also be stepped up. ''While Wardley's expertise is in corporate finance and in the origination of deals, Hongkong Bank can provide the balance-sheet support and the underwriting skills,'' Mr Pavlou said. He admitted that the bank's position in the capital market, as represented by Wardley, seemed to be limited to Hong Kong dollars, but said the picture had changed since the acquisition of Midland Bank. ''A new division with a separate board was set up [called HSBC Market], which oversees all the worldwide capital-market activities of the group,'' he said, adding that the bank's partners included UK investment bank Samuel Montagu. As part of the bank's strategy to strengthen its treasury operation, it has started a 24-hour treasury service this year. ''We do not call it 24-hour dealing, but 24-hour service because it aims to enhance our service to the customers who want to know the movements in the markets after midnight,'' Mr Pavlou said. Around-the-clock trading is also provided by the Bank of China Group Treasury Centre, initiated last year, which looks after the put-together positions from its 13 member banks. But Mr Pavlou stressed that what motivated the move was upgrading service quality to customers and not competition from rival banks. He said the bank would establish a treasury operation in Shanghai, catering to the needs of mainland joint ventures. ''It is now a matter of finding the right premises, staff and the equipment,'' he added. A number of foreign banks, such as Standard Chartered, have set up small-scale dealing rooms in Shanghai, placing much emphasis on marketing treasury products to the relatively unsophisticated enterprises there. Good representation in other Asian countries is essential. ''Although Hongkong Bank is strong in the Hong Kong dollar, it has to compete with strong banks in all the other major currencies. That's our main disadvantage,'' Mr Pavlou said. The bank is currently mapping out an expansion plan for its treasury activities in Asia, with particular attention paid to the potential of India. ''With the economic reforms happening and the gradual abolition of foreign-exchange control, the economy is beginning to pick up,'' Mr Pavlou said. ''We are looking at individual markets, thinking how best to expand operations there,'' he said, adding that the gradual deregulation of various Asian markets offered immense opportunities for the bank. Hong Kong and Singapore remain the region's two most profitable places for treasury operations, followed by Australia, India, Indonesia and Thailand. Apart from expanding the bank's presence, rapid changes and growing sophistication have altered the way the treasury department delivered its services. ''We cannot afford merely to take out a trolley of products and ask the customers to choose,'' Mr Pavlou said. Such ready-made treasury products are being replaced by the concept of financial engineering, which tailors the structure of the deals in accordance with customers' special needs.