FOR the third consecutive year, Jardine Fleming remains top of the list of Hong Kong's most profitable merchant banks. The bank posted net profits of $1.573 billion in 1993, up 166 per cent. The bank's return on equity was 90.89 per cent. The order of the top five banks remains unchanged from the previous year. The report was compiled by Jardine Fleming, but is widely regarded in the industry as the best indicator of merchant banks' profitability. Wardley Holdings, ranked second on the list, saw its profit rise from $542.2 million to $1.063 billion. Peregrine was the third most profitable bank, reporting a profit of $635.2 million. Peregrine's figure did not include profit from its associated companies, such as Kwong Sang Hong. ''It is improper to chop off the income generated by our associated companies,'' protested Francis Leung, managing director of Peregrine Capital. ''The group as a whole recorded $865 million in profit last year. We still could have got income if we had put our investments into other banking-related business rather than trading or property investments,'' he explained. He added that Jardine Fleming and Wardley's earnings could be largely derived from fund management and banking business. ''While we have a very strong stock-broking and corporate finance divisions, so different merchant banks specialise in different areas,'' he said. Alan Smith, chairman of Jardine Fleming, said active trading in regional markets accounted for last year's record sums. ''We are maintaining a 'wait-and-see' attitude for 1994, although brokers do not expect a record as strong as last year's,'' he said. Geographically, Hong Kong was still a major market for Jardine Fleming in 1993. ''We expect Japan will be important to us in terms of activities this year,'' he added. He said Jardine Fleming was more diversified compared with its competitors and had an active presence in other Asian markets, such as India and Japan. Product-wise, the bank was very much involved in last year's convertible bond issues. Looking ahead, Mr Smith believed Hong Kong depositary receipts would be one of the growth areas. ''We would be quite optimistic about the listing of foreign shares here,'' he said. Of the top 14 banks, China Development Finance, the merchant banking arm of the Bank of China, rose to sixth place last year. Its profits increased to $95.8 million in 1993 from $65.8 million in 1992. China Development Finance has been an aggressive player since Chinese state-owned enterprises began their massive influx into the local market at the beginning of last year. It sponsored Tsingtao Brewery, the first of the H shares listed in the territory last year. Standard Chartered, recently censured, ranked eighth, with its profits down slightly to $70.1 million in 1993 from $72.9 million in 1992.