By using our website you consent to all cookies in accordance with our Privacy Policy.

Hong Kong banking system is characterized by a three-tier system, including Licensed banks, Restricted banks, and Deposit-taking companies. In this blog, we will delve into key features of each type!

hong-kong-banking-system-cover

1. A glance at the banking system in Hong Kong

The banking sector is of vital significance in the economic development of Hong Kong.

Not only has Hong Kong become flourishing in terms of offshore banking, but also a strong linkage between Hong Kong and offshore renminbi business to Mainland China has attracted much attention from most foreign investors in recent years.

Hong Kong is deemed a globally well-reputed financial hub. There are presences of more than 70 of the world’s 100 largest banks in Hong Kong. With the high concentration of international banks, Hong Kong is listed in the top ten biggest international banking mecca when it comes to the volume of external transactions.

The banking system in Hong Kong is regulated under the Hong Kong Monetary Authority (HKMA). Except for the issuance of banknotes, most of the key duties of a central bank will be performed by HKMA. Hong Kong banking system is characterized by four main types of banks:

hkma-system-hong-kong

  • Licensed banks
  • Restricted license banks
  • Deposit-taking companies
  • Offices of foreign banks (Representative offices of overseas banks)

Other than representative offices, the banking system in Hong Kong is dominated by its three-tier system including three types of banking institutions as above. This system is categorized upon the amount of deposit, term of the deposit, and each one’s business nature. They are also collectively known as Authorized Institutions (AIs) supervised under the Banking Ordinance.

As per HKMA's latest update to April 2020, the number of authorized institutions in Hong Kong was 193 in total, including 163 licensed banks, 17 restricted banks, and 13 deposit-taking companies in Hong Kong. Furthermore, the jurisdiction has 42 local representative offices of overseas banks, 8 locally incorporated companies in Hong Kong granted licenses for virtual bank operations, and 30 money broker approvals by the HKMA.

You may feel interested: How to open a bank account in Hong Kong for 2021

It should be noted that there are certain requirements as well as restrictions amongst three types. It is also interesting to know that only restricted banks and licenses banks – the first two forms – can be deemed as banks. In what follows, we will delve into key features of the three-tier banking system in Hong Kong.

Need an a-to-z guide to doing business in Hong Kong?
This e-book provides you with the latest information about:

  • Incorporation process
  • Annual compliance requirement
  • Hong Kong tax system
  • Hiring issues for Hong Kong Business

2. Features of three-tier banking system in Hong Kong

The table below represents key highlights of three-tier banking system in Hong Kong:

Licensed BanksRestricted License BanksDeposit-taking Companies
Current and saving accountsCapital market and merchant banking activitiesSpecialized activities, namely consumer finance, securities business, commercial lending
Accept deposits of any size and maturity from the publicAccept deposits of any maturity of HK$500,000 and aboveAccept deposits of HK$100,000 or above with an original term of maturity of at least three months
Minimum capital requirement of HK$300 millionHK$100 millionHK$25 million

Licensed Banks can be incorporated inside or outside Hong Kong.

Virtual banks are allowed in Hong Kong and categorized as licensed banks.

Restricted License Banks can be incorporated inside or outside Hong Kong.

All deposit-taking companies are incorporated in Hong Kong.

Licensed Banks

hk-licenced-banks

Only this type of bank may carry out “banking business” related activities as prescribed under the Banking Ordinance. These activities can be accepting deposits, providing retail customers current, checking, savings, or other similar accounts, granting loans, paying or collecting cheques drawn paid in by customers, etc. Licensed banks are allowed to accept any deposits regardless of size and maturity.

The minimum capital requirement (including paid-up share capital and balance of share premium account) for licensed banks is HK$300 million, which is much higher than that for the other two types of banks. It should be also noted that only licensed banks in Hong Kong must observe the minimum-size criteria which are required to hold HK$3 billion public deposits and have total assets of at least HK$4 billion.

Currently, Hong Kong has 31 domestically licensed banks and 132 licensed banks incorporated outside Hong Kong. Licensed banks in Hong Kong protect their depositors through the Deposit Protection Scheme with the allowable maximum protection of up to HK$500,000 per depositor.

Restricted Banks

hk-restricted-license-banks

Restricted license banks are actually merchant banks and investment banks. This type of bank is not allowed to carry out a range of banking business like the above-mentioned fully licensed banks. As its name denoted, there is a restriction for restricted banks. In terms of deposits, the bank only accepts deposits of no less than HK$500,000.

Another key to mention is that restricted banks in Hong Kong typically take deposits for short-term periods with either a period of notice or an original term to maturity of 3 months in maximum. In Hong Kong, a total of 17 restricted license banks, including 12 banks incorporated in Hong Kong are available.

Deposit-taking companies

hk-deposit-taking-companies

These are companies established or connected with the licensed banks or banks incorporated outside Hong Kong. Deposit-taking companies are allowed to engage in consumer finance, commercial lending, and securities-related business activities.

Unlike the other two types of deposit-taking institutions, these companies may take deposits of HK$100,000 or above with an original term to maturity lasting more than 3 months.

Up to now, 13 deposit-taking companies in Hong Kong are all incorporated inside Hong Kong.

3. Banking system in Hong Kong & other related matters

Criteria for authorization

All authorized institutions in Hong Kong are subject to the minimum criteria for authorization as prescribed in the Seventh Schedule to the Banking Ordinance. If any banking applicants do not satisfy one of these criteria, the HKMA may reject their application. Note that such conditions must be met and maintain both at the time of application being made and after authorization.

What are these minimum criteria? Below are the key criteria that applicants should bear in mind:

hk-criteria-for-authorization

Deposit Protection Scheme

Deposit Protection Scheme (DPS) was launched in 2006 under the Deposit Protection Scheme Ordinance. This scheme is to protect deposits held by licensed banks in Hong Kong by giving them compensation in case of bank failure. Note that deposits, if eligible, will be put under the protection by the DPS automatically; therefore, they do not need to apply for compensation.  Depositors covered under the DPS of Hong Kong, whether to be an individual or a company, can be compensated up to a max of HK$500,000.

hk-deposit-protection-scheme

Deposits qualifying with this scheme include conventional deposits like savings, current accounts, time deposits time with a term not exceeding 5 years, secured deposits, and any deposits by individuals and corporations, except for structured deposits, offshore deposits, or bearer instruments. Moreover, protected deposits can be in HK dollar, renminbi, or any kind of foreign currency.

Note, however, that deposits taken by restricted license banks and deposit-taking companies are not under the protection of this scheme.

Virtual banks

A virtual bank does not deliver its business activities in physical branches. It refers to the bank principally conducting retail banking services via the internet or some other means of electronic vehicles. The emergence of virtual banking in Hong Kong plays an important role in marking the footstep of Hong Kong into the Era of Smart Banking.

Below is a summary of key points regarding virtual bank requirements in Hong Kong:

hk-virtual-banks

  • Virtual banks are subject to a set of supervisory obligations as same as the conventional banks in Hong Kong, including the minimum requirement for authorization under the Seventh Schedule of the Banking Ordinance.
  • Virtual banks in Hong Kong shall not impose any minimum account balance requirement/low-balance fees on the bank’s customers.
  • Virtual banks should be formed as locally incorporated banks. Maintaining a physical presence is a must for any virtual bank applicant in Hong Kong.
  • Virtual banks are required to maintain adequate capital which must be well-matched with their operations and banking risks. Term and conditions upon the benefits and obligations of the bank and customers must also be clearly set out from the bank’s commencement.

To get a virtual bank licensed in Hong Kong, there are some important documents submitted on the application, some of which include a credible and viable business plan, an exit plan, an assessment report of its technology system, a description of risk-based management, etc.

Currently, there are 8 virtual banks in Hong Kong. The list of all the above-mentioned types in Hong Kong banking systems can be seen found at List of Hong Kong banks in the category upon license banks, restricted banks & deposit-taking companies.

*NOTE: You should not misunderstand the concept of Virtual Banks with fintech platforms, aka Money Service Operators (MSOs) in Hong Kong. A big plus for these fintech solutions is that you do not need to visit Hong Kong for opening a bank account. The presences of MSOs increasingly become widely-used alternatives to traditional banks and virtual banks in Hong Kong.

Learn more: Alternatives to traditional bank accounts in Hong Kong

Recent Posts

how-to-start-e-commerce-business-in-hong-kong
5 Feb 2021

How to kick-start your e-commerce business in Hong Kong

How to start an e-commerce business in Hong Kong? This blog gives you insights into what to consider and key steps for setting up a Hong Kong e-commerce company.

Read more
ecommerce-business-in-hong-kong
30 Dec 2020

Choosing Hong Kong for an e-commerce business: Is it right?

Hong Kong is a prospective and bustling market for most online business owners. So why is Hong Kong an ideal location for an e-commerce business? Find out with us!

Read more
private-company-in-hong-kong
21 Jan 2021

All you should know about Private Company in Hong Kong

Looking for an entity type in Hong Kong that is best suited for SMEs? With tons of benefits, a private limited company remains the top choice of investors.

Read more
how-to-comply-with-hong-kong-accounting-standards
5 Feb 2021

How to comply with Hong Kong accounting standards: Guide For SMEs

Hong Kong accounting standards are applicable to any financial statements of a Hong Kong company. BBCIncorp will tell you these standards and accounting requirements in Hong Kong!

Read more
alternatives-to-traditional-bank-accounts-in-hong-kong
5 Feb 2021

Alternatives to traditional bank accounts in Hong Kong

While opening traditional bank accounts in Hong Kong causes hassle for business owners, some alternatives to bank accounts have popped up in recent years. So, what are they?

Read more
doing-business-in-hong-kong-the-ultimate-guide-for-foreigners
11 Jan 2021

Doing Business In Hong Kong: The Ultimate Guide For Foreigners

Here is a guide to doing business in Hong Kong for foreigners! The blog covers all you need to know about the benefits of forming a business in Hong Kong and how to start it.

Read more
how-to-choose-hong-kong-financial-year-end
7 Dec 2020

How to choose Hong Kong financial year end

Wonder how to determine the financial year end in Hong Kong? In this article, we will shed light on everything about Hong Kong financial year. Learn more with us!

Read more
checking-tool-for-hong-kong-company-registration
25 Nov 2020

Useful checking tools for your Hong Kong company registration

There are some tools to help you check your company status and what licenses you need to prepare before registering a Hong Kong company. Check out the guide to those useful tools!

Read more
hong-kong-tax-haven-what-can-be-revealed
12 Jan 2021

Hong Kong Tax Haven: What Can Be Revealed?

Beyond Hong Kong tax haven, like the way many people still think of this city, there are more of Hong Kong that you should know. Find out what they are!

Read more
hong-kong-business-trends-new-updates-infographic
25 Nov 2020

Hong Kong Business Trends After Mid-2020: New Updates [Infographic]

Check it out! Below infographic helps you to capture Hong Kong situations and update top five business trends to be worth expected in a post Covid-19 outbreak

Read more
reasons-why-hong-kong-banks-may-reject-your-application
5 Feb 2021

3 Reasons why Hong Kong banks may reject your application

Hong Kong banks may reject your application for opening a bank account due to 3 main reasons. Learn more with Lyli, Relationship Manager from BBCIncorp!

Read more
best-banks-in-hong-kong
5 Feb 2021

Best banks in Hong Kong that you must know in 2021

Which is the best bank in Hong Kong for expats? Let BBCIncorp help you find out the answer with top 5 banks: DBS, HSBC, Bank of China, Standard Chartered and Citibank.

Read more