The beginnings of a run on the International Bank of Asia (IBA) and some of Hong Kong's smaller banks appears to have been brought under control, following a full scale mobilisation by the government and other banks to provide both verbal support and offers of hard cash for any bank encountering problems as a result of the current turmoil in Asian financial markets.
Sir Donald Tsang, the Financial Secretary, yesterday spelled out the level of the government's commitment to ensure there were no bank failures.
He said that Hong Kong's Exchange Fund, with assets exceeding pounds 45bn, "stands squarely behind this institution [IBA] and will provide all the necessary financial support it may require to meet its obligations for as long as is necessary".
He described the bank as a "well managed, well capitalised banking institution". Sir Donald's boss, the Chief Executive Tung Chee-hwa, also emerged yesterday to say "the banking system in Hong Kong is fine and this particular bank is fine".
He added: "Because of rumours there are uncertainties among ordinary people which is understandable but they are more driven by rumours".
The bank faced a second day of queues with people wishing to close their account. It has reacted calmly to the crisis, quickly meeting all demands for withdrawals, even allowing customers to redeem time deposits before their due date and extending banking hours to clear the queues.
It says that the situation more or less returned to normal yesterday and that it has sufficient resources to meet any demands for withdrawals.
The IBA is a fast-growing, medium-sized bank, controlled by one of the biggest banks in the Middle East, the Arab Banking Corporation. China Everbright Holdings, one of China's largest state-owned conglomerates, is a 20 per cent shareholder.
The parent company has pledged full support to its associate and transferred a "substantial" amount of cash to Hong Kong.
However, there is clearly pressure on the banking sector and a fear of accumulating bad loans as property prices take a dive and speculators get their fingers burned. For this reason the credit rating agency Moody's is currently reviewing its ratings for Hong Kong banks.
However, yesterday the Standard & Poor's credit rating agency published a report which stated that it was maintaining its relatively high credit ratings for territory's banks and believed that "the volatile nature of both the property market and the stock market in Hong Kong has always been taken into account in the rating of Hong Kong banks".
Relief over the situation in the banking sector produced a mood of cautious optimism in the stock market with the blue-chip Hang Seng Index closing barely changed after a day of mixed trading. Other Asian markets also inched upwards yesterday.Reuse content