Abstract
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.
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Notes and References
See for example W. W. Rostow, Process of Economic Growth, (Oxford, 1960) pp. 261–73
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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.
See Y. C. Jao, ‘Financing Hong Kong’s Textile Growth’ Textile Asia (Dec 1970) pp. 23–5.
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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.
For a full discussion of the legal aspects of the Trust Receipt, see C. N. Henning, International Finance (New York, 1958) pp. 209–24.
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.
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.
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Jao, Y.C. (1974). Allocation of Bank Credit. In: Banking and Currency in Hong Kong. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-02199-4_8
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DOI: https://doi.org/10.1007/978-1-349-02199-4_8
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