The Three-Tier Banking System in Hong Kong: How It Works (2024)

Hong Kong is renowned for its robust and dynamic business environment, making it an attractive choice for individuals and companies alike to entrust their finances to the city's banking sector. Here, banks are esteemed for their extensive offerings and trusted reliability.

The backbone of this reliability lies in the efforts of financial regulators like the Hong Kong Monetary Authority (HKMA), which uses a unique three-tier banking system.

Overview of the Three-Tier Banking System in Hong Kong

The Banking Ordinance is a statute that details the legal framework for regulating banks in Hong Kong – in it are details of the three-tier banking system. 

Comprising over 190 authorised institutions, the purpose of the three-tier banking system is to categorise deposit-taking institutions based on the amount and term of deposits accepted, as well as the nature of their business activities. 

It is also designed to ensure healthy competition in Hong Kong’s diversified banking sector that caters to various financial needs. 

What Are Licensed Banks in Hong Kong?

Licensed banks in Hong Kong are the first tier of banking institutions under the HKMA's regulatory framework – they are generally allowed to do the most. 

Licensed banks are allowed to accept deposits of any size and maturity. They can provide retail customers with current, checking, savings, or similar accounts. They can grant loans. They can collect and pay cheques from customers. Licensed banks are also the only tier that can call themselves banks without restriction.

The minimum paid-up capital requirement for licensed banks is HKD 300 million, the largest among the three tiers of banks. This means they must readily have at least HKD 300 million on-hand for their operations.

Licensed banks in Hong Kong are part of the Deposit Protection Scheme with the allowable maximum protection of up to HKD 500,000 per depositor.

📉 Statistic: The HKMA observed a 10% rejection rate for account opening applications from small and medium-sized enterprises and startups at retail banks.

List of Licensed Banks Incorporated in Hong Kong

• Airstar Bank Limited
• Ant Bank (Hong Kong) Limited
• Bank of China (Hong Kong) Limited
• Bank of Communications (Hong Kong) Limited
• The Bank of East Asia, Limited
• China CITIC Bank International Limited
• China Construction Bank (Asia) Corporation Limited
• Chiyu Banking Corporation Limited
• Chong Hing Bank Limited
• Citibank (Hong Kong) Limited
• CMB Wing Lung Bank Limited
• Dah Sing Bank, Limited
• DBS Bank (Hong Kong) Limited
• Fubon Bank (Hong Kong) Limited
• Fusion Bank Limited
• Hang Seng Bank, Limited
• The Hongkong and Shanghai Banking Corporation Limited
• Industrial and Commercial Bank of China (Asia) Limited
• Livi Bank Limited
• Morgan Stanley Bank Asia Limited
• Mox Bank Limited
• Nanyang Commercial Bank, Limited
• OCBC Bank (Hong Kong) Limited
• Ping An OneConnect Bank (Hong Kong) Limited
• Public Bank (Hong Kong) Limited
• Shanghai Commercial Bank Limited
• Standard Chartered Bank (Hong Kong) Limited
• Tai Sang Bank Limited
• Tai Yau Bank, Limited
• WeLab Bank Limited
• ZA Bank Limited

List of Licensed Banks Incorporated Outside of Hong Kong

• Agricultural Bank of China Limited
• Australia and New Zealand Banking Group Limited
• Banco Bilbao Vizcaya Argentaria S.A.
• Banco Santander, S.A.
• Bangkok Bank Public Company Limited
• Bank J. Safra Sarasin AG (also known as: Banque J. Safra Sarasin SA, Banca J. Safra Sarasin SA, Bank J. Safra Sarasin Ltd)
• Bank Julius Baer & Co. Ltd.
• Bank of America, National Association
• Bank of China Limited
• Bank of Communications Co., Ltd.
• Bank of Dongguan Co., Ltd.
• Bank of India
• Bank of Montreal
• The Bank of New York Mellon
• The Bank of Nova Scotia
• Bank of Singapore Limited
• Bank of Taiwan
• Bank Sinopac
• Banque Pictet & Cie SA
• Barclays Bank PLC
• BDO Unibank, Inc. (also known as: BDO, BDO Unibank, BDO de Oro, Banco de Oro Unibank, BDO Banco de Oro)
• BNP Paribas
• CA Indosuez (Switzerland) SA
• Canadian Imperial Bank of Commerce
• Cathay Bank
• Cathay United Bank Company, Limited
• Chang Hwa Commercial Bank, Ltd.
• The Chiba Bank, Ltd.
• China Bohai Bank Co., Ltd.
• China CITIC Bank Corporation Limited
• China Construction Bank Corporation
• China Development Bank
• China Everbright Bank Co., Ltd.
• China Guangfa Bank Co., Ltd.
• China Merchants Bank Co., Ltd.
• China Minsheng Banking Corp., Ltd.
• China Zheshang Bank Co., Ltd.
• The Chugoku Bank, Ltd.
• CIMB Bank Berhad
• Citibank, N.A.
• Commonwealth Bank of Australia
• Coöperatieve Rabobank U.A.
• Credit Agricole Corporate and Investment Bank
• Credit Industriel et Commercial
• Credit Suisse AG
• CTBC Bank Co., Ltd.
• DBS Bank Ltd.
• Deutsche Bank Aktiengesellschaft
• DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main
• E.Sun Commercial Bank, Ltd.
• East West Bank
• EFG Bank AG (also known as: EFG Bank SA, EFG Bank Ltd)
• Erste Group Bank AG
• Far Eastern International Bank
• First Abu Dhabi Bank PJSC
• First Commercial Bank, Ltd.
• HDFC Bank Limited
• Hong Leong Bank Berhad
• HSBC Bank PLC
• HSBC Bank USA, National Association
• Hua Nan Commercial Bank, Ltd.
• Hua Xia Bank Co., Limited
• ICICI Bank Limited
• Indian Overseas Bank
• Industrial and Commercial Bank of China Limited
• Industrial Bank Co., Ltd.
• Industrial Bank of Korea
• ING Bank N.V.
• Intesa Sanpaolo SPA
• JPMorgan Chase Bank, National Association
• KBC Bank N.V.
• KEB Hana Bank
• Kookmin Bank
• Land Bank of Taiwan Co., Ltd.
• LGT Bank AG (also known as: LGT Bank Ltd, LGT Bank SA)
• Malayan Banking Berhad
• Mashreq Bank - Public Shareholding Company (also known as: Mashreqbank PSC)
• Mega International Commercial Bank Co., Ltd.
• Melli Bank PLC
• Mitsubishi UFJ Trust and Banking Corporation
• Mizuho Bank, Ltd.
• MUFG Bank, Ltd.
• National Australia Bank Limited
• National Bank of Pakistan
• Natixis
• NongHyup Bank
• O-Bank Co., Ltd.
• Oversea-Chinese Banking Corporation Limited
• Philippine National Bank
• Ping An Bank Co., Ltd.
• PT. Bank Negara Indonesia (Persero) Tbk.
• Qatar National Bank (Q.P.S.C.)
• Royal Bank of Canada
• The Shanghai Commercial & Savings Bank, Ltd.
• Shanghai Pudong Development Bank Co., Ltd.
• The Shiga Bank, Ltd.
• Shinhan Bank
• The Shizuoka Bank, Ltd.
• Skandinaviska Enskilda Banken AB
• Societe Generale
• Standard Chartered Bank
• State Bank of India
• State Street Bank and Trust Company
• Sumitomo Mitsui Banking Corporation
• Sumitomo Mitsui Trust Bank, Limited
• Taipei Fubon Commercial Bank Co., Ltd.
• Taishin International Bank Co., Ltd
• Taiwan Business Bank, Ltd.
• Taiwan Cooperative Bank, Ltd.
• Taiwan Shin Kong Commercial Bank Co., Ltd.
• Toronto-Dominion Bank
• UBS AG
• UCO Bank
• UniCredit Bank AG
• Union Bancaire Privée, UBP SA (also known as: United Private Bank, UBP Ltd)
• United Overseas Bank Ltd.
• Wells Fargo Bank, National Association
• Woori Bank
• Yuanta Commercial Bank Co., Ltd

💡 Tip: Virtual banks in Hong Kong are licensed banks, unlike similar financial service providers which may not be called banks. Ensure your provider aligns with your needs, no matter what they are called.

What Are Restricted Licensed Banks in Hong Kong?

Restricted License Banks (RLBs) are institutions that are permitted to take deposits and offer banking services to the public with limitations. A restricted licence bank may only take time, call or notice deposits from members of the public in amounts of HKD 500,000 and above without restriction on maturity. 

Restricted licence banks also typically provide merchant banking and capital market operations. This means they might be a facilitator between the public and issuers of securities; they may provide advisory services on corporate matters or assist with investment management, especially in private equity or other specialized sectors.

Restricted Licence Banks must maintain the paid-up capital requirements of HKD 150 million. They are not part of the Deposit Protection Scheme.

List of Restricted Licence Banks Incorporated in Hong Kong

• Allied Banking Corporation (Hong Kong) Limited
• Banc of America Securities Asia Limited
• Bank of China International Limited
• Bank of Shanghai (Hong Kong) Limited
• Citicorp International Limited
• Goldman Sachs Asia Bank Limited
• Habib Bank Zurich (Hong Kong) Limited
• J.P. Morgan Securities (Asia Pacific) Limited
• KDB Asia Limited
• Orix Asia Limited

List of Restricted Licence Banks Incorporated Outside of Hong Kong

• The Access Bank UK Limited
• Euroclear Bank
• Kasikornbank Public Company Limited
• The Korea Development Bank
• PT. Bank Mandiri (Persero) Tbk
• The Siam Commercial Bank Public Company Limited

Deposit-Taking Companies

Deposit-taking companies are usually subsidiaries of banks or otherwise connected to them. They are licenced in commercial lending, securities businesses, and consumer finance.

They may take deposits as low as HKD 100,000 with an original term maturity of over 3 months. They cannot call themselves a bank. Deposit-taking companies must maintain the paid-up capital requirement of HKD 100 million, unless they are locally incorporated, where the requirement is then HKD 25 million. They are not part of the Deposit Protection Scheme.

They are also notably not part of the HKD Real Time Gross Setlement (RTGS)  system, also called the HKD Clearing House Automated Transfer System (CHATS). This is a payment system that aims to consolidate and improve efficiency for interbank payments made in HKD.

Additionally, the regulatory authorities of Hong Kong may soon do away with the deposit-taking company tier, forcing them to restructure and meet the restricted licence bank requirements or exit the market completely. 

List of Deposit-Taking Companies

• BCOM Finance (Hong Kong) Limited
• BPI International Finance Limited
• Chau's Brothers Finance Company Limited
• Chong Hing Finance Limited
• Corporate Finance (D.T.C.) Limited
• Fubon Credit (Hong Kong) Limited
• KEB Hana Global Finance Limited
• Kexim Asia Limited
• Public Finance Limited
• Vietnam Finance Company Limited
• Woori Global Markets Asia Limited

Alternatives to Traditional Banks

Though the three-tier system does not currently include all alternatives to banks, it is, of course, a topic of discussion among financial regulators in the city of Hong Kong. Since financial service providers mostly operate online, Hong Kong-based individuals and businesses are able to access them, and thus they affect local banking and finance. 

Virtual Banks

Though virtual banks are sometimes called neobanks or challenger banks, the term “virtual bank” was specifically designated as a form of licenced bank in 2018 by the HKMA. This means virtual banks must apply for a banking licence before being allowed to operate. These institutions operate exclusively online, offering an array of banking services without the need for physical branches. Typically, this approach significantly reduces operational costs. 

Virtual banks were incredibly popular when they first opened in 2020, with just eight banks more than 1.2 million accounts - both personal accounts and business accounts - opened in one year.

Examples of virtual banks:

• ZA Bank
• Airstar Bank
• WeLab Bank
• Livi Bank
• Mox Bank
• Ant Bank
• PingAn OneConnect Bank
• Fusion Bank

Neobanks

Neobanks, while often used interchangeably with virtual banks, have a distinct identity in the realm of digital financial services. These fintech entities specialise in offering money services through highly intuitive mobile apps and web platforms, prioritising user experience and accessibility. 

Unlike traditional banks, neobanks typically do not have a banking license on their own but may partner with established banks to offer their services. 

For example, Statrys is a licensed money service operator that is regulated by the Hong Kong Customs and Excise department, but Statrys offers services whose functions would feel very familiar to those who use a business account at a traditional bank. Though Statrys is partnered with DBS Hong Kong, Statrys is not a bank. 

Examples of neobanks:

1. Chime
2. Statrys
3. Varo

The Role of the Hong Kong Monetary Authority (HKMA)

There are four main Hong Kong financial authorities - the Hong Kong Monetary Authority, the Insurance Authority (IA), the Mandatory Provident Fund Schemes Authority (MPFA), and the Securities and Futures Commission (SFC). 

The HKMA is the linchpin of Hong Kong's banking and financial system, ensuring its robust operation, regulation, and integrity. Established on April 1, 1993 by merging the Office of the Exchange Fund with the Office of the Commissioner of Banking, the HKMA has been instrumental in maintaining monetary and banking stability, overseeing a stable currency regime, and promoting Hong Kong as a premier international financial center.

Though the HKMA also functions as a central bank for Hong Kong, they are a key part of economic and finance-related policy creation and regulation.  

Their duties also include stabilizing the local currencies per the Linked Exchange Rate System and they also manage their equivalent of a sovereign wealth fund called the Exchange Fund.

Supervision and Regulation of Banks

The HKMA helps design and implement a comprehensive regulatory framework, encompassing licensing, supervision, and the development of policies to maintain the stability of the banking sector. 

Since the HKMA regulates banks and similar money service operators (such as neobanks or virtual banks), they are often producing authoritative and comprehensive reports that become key documents in fiscal policy. These policies then in turn affect banks, deposit-taking companies, money service operators, and other financial institutions.

The HKMA's Approach to Financial Stability

With a proactive stance on supervision and policy formulation, the HKMA seeks to create a banking environment that is not only stable but also conducive to economic growth and consumer protection. Its efforts are pivotal in ensuring that Hong Kong remains an attractive hub for global finance.

Safeguarding Investors and Consumers

Hong Kong's financial system is underpinned by robust safeguards designed to ensure market fairness and protect the interests of investors and consumers. These measures combat financial crimes such as insider dealing and market manipulation while ensuring transparency and accuracy in the disclosure of investment product information. 

Financial intermediaries are required to clearly explain product features and risks, aiding consumers in making informed decisions. 

This comprehensive protective framework is vital for maintaining confidence in Hong Kong's financial markets and upholding its integrity as a global financial hub.

💡 Fun fact: Since Hong Kong’s regulation framework is industry-based, even consumer debit card and credit card use is regulated by the HKMA, in addition to their bigger-picture duties.