An improving economy and a recovery in loan demand now gives banks the chance and resources to conduct comprehensive reviews, and identify and control operational risk, Monetary Authority Chief Executive Joseph Yam says.

In his latest Viewpoint article, posted today on the authority's website, Mr Yam said competition among banks has been keen in recent years, and this has forced efficiency gains.

"Yet the questions arise about whether there is a possibility that competition-induced cost-saving measures might have led to management thinning to the extent of impairing the ability of individual banks to manage risk generally and operational risk in particular," he said.

"I hope that with an improving economy and a recovery in loan demand banks can seize the opportunity and make special efforts to strengthen their management capacity, operations and remedy any deficiencies in their risk control."

New challenges

Mr Yam said banks are also facing new challenges, such as Basel II and the provision of more integrated financial services, that require close management attention.

He continued: "As a banking supervisor, we can only offer our views, from a rather more general point of view, as we see the situation develop in and around Hong Kong.

"But these challenges also provide good opportunities to conduct check-ups. And if there is a choice of conducting one that is routine and one that is more thorough, I definitely recommend the latter."