Allocation of Bank Credit

  • Y. C. Jao


Of the many functions of commercial banks it is the provision of credit that has the most direct bearing on the real growth of the economy. The banking system acts as the intermediary which channels financial resources from savers to entrepreneurs who organise the productive processes that add to the real output. But the banks’ role is not limited to the production side only. Retail merchants for example are no less in need of bank credit to finance the distribution of final goods Similarly consumers require bank assistance in acquiring durable goods on hire-purchase basis. In a credit economy the banks are involved in every stage of the circular flow of goods and services, from their first production through distribution to their final consumption.


Banking Sector Bank Loan Bank Credit Trade Sector Lending Rate 
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Notes and References

  1. 1.
    See for example W. W. Rostow, Process of Economic Growth, (Oxford, 1960) pp. 261–73Google Scholar
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    H. B. Chenery, ‘The Use of Interindustry Analysis in Development Programming’ in T. Barna (ed), Structural Interdependence and Economic Development (London, 1963) pp. 11–27.Google Scholar
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    See Ronald Hsia, ‘Hong Kong Textile Exports: A Case Study of Voluntary Restraints’, in H. E. English and K. A. J. Hay (eds), Obstacles to Trade in the Pacific Area (Ottawa, 1972) pp. 167–86.Google Scholar
  6. 5.
    See Y. C. Jao, ‘Financing Hong Kong’s Textile Growth’ Textile Asia (Dec 1970) pp. 23–5.Google Scholar
  7. 6.
    Census and Statistics Department, 1971 Census of Manufacturing Establishments, (Hong Kong, 1973).Google Scholar
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  12. 8.
    For example the Chartered Finance Ltd, a wholly owned subsidiary of the Chartered Bank, is very active in hire-purchase finance for small firms to acquire industrial machinery and equipment in various industries. See also M. Coulter, ‘Banks and the Never-Never’, Far Eastern Economic Review, (3 April 1971) pp. 41–2.Google Scholar
  13. 10.
    For a full discussion of the legal aspects of the Trust Receipt, see C. N. Henning, International Finance (New York, 1958) pp. 209–24.Google Scholar
  14. 11.
    For a general description of the methods of industrial financing by banks, see M. G. Carruthers, ‘Financing Industry’, Far Eastern Economic Review, (24 Feb 1966) pp. 367–70. In a study of all public companies listed on the Hong Kong Stock Exchange, it is found that their current ratio is relatively low. About half had a ratio in 1966 below 1.0, while only about 14 per cent had a ratio of over 2.0. By contrast, a similar calculation for American companies would show most of them with a ratio of over 2.0 or more.Google Scholar
  15. See M. Moonitz, ‘Financial Reporting in Hong Kong — A Preliminary Study’, Hong Kong Economic Papers, Vol 4, (1968) pp. 1–11. This may be due, according to the author, to the fact that American banks always insist on a 2.0 or better current ratio as one condition for short-term credit, while banks developed on the British model prefer to finance the short-term credit needs by ‘overdraft’ without insistence on a high order of liquidity as a precondition. So far as the public companies are concerned there is little doubt that the lending policy of banks in Hong Kong is very liberal, but the same attitude does not necessarily apply to other private companies or unincorporated firms.Google Scholar
  16. 12.
    P. A. Graham, ‘Banks Aid Colony’s Industrial Growth’, South China Morning Post Hong Kong Trade and Industry Review (7 Dec 1966) p. 29. See also his ‘Financing of Business’, paper presented at the conference of the International Council for Scientific Management (October 1968, mimeographed). The author was then Chief Manager of the Chartered Bank.Google Scholar
  17. 14.
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  24. James Riedel, ‘The Hong Kong Model of Industrialization’, Kiel Institute of World Economics Working Paper (1972, mimeographed).Google Scholar
  25. 19.
    J. Tinbergen, ‘International, National, Regional and Local Industries’ in R. E. Baldwin et al., Trade, Growth and the Balance of Payments (Amsterdam, 1965) p. 120.Google Scholar
  26. 25.
    See H. D. Davies, ‘Investing in Tourism’, Finance and Development (March 1967) pp. 1–8.Google Scholar
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    A. J. Alwan, ‘Banking and Economic Development’, Economic and Business Bulletin (Spring-Summer 1970) pp. 11–18.Google Scholar
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    R. Cameron (ed), Banking in the Early Stages of Industrialization (New York, 1967) p. 2.Google Scholar
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    H. T. Patrick, ‘Financial Development and Economic Growth in Underdeveloped Countries’, Economic Development and Cultural Change (January 1966) pp. 174–77.Google Scholar
  30. J. A. Schumpeter’s famous classic, The Theory of Economic Development (Cambridge, Mass. 1933).Google Scholar

Copyright information

© Y. C. Jao 1974

Authors and Affiliations

  • Y. C. Jao
    • 1
  1. 1.University of Hong kongChina

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