our authorisation requirements, i hope that these can be in operation quite soon. one of the main tests that these applicants will have to satisfy is that they have adequate security to prevent unauthorised access to their systems and to protect customer information. weak internet security puts the financial position and the reputation of the bank at risk, and concerns about security are the major barrier to more widespread customer acceptance of e - banking. it is essential therefore that the banks get this right. we have tried to help by issuing guidelines to the banks on various aspects of security, including the need for senior management to commission periodic independent assessments of the security aspects of their e - banking services. we have recently provided further guidance on how such assessments should be conducted and the areas they should cover. however, we also need to be in a position to conduct meaningful on - site examinations of our own. this requires us to build up our own in - house teams of it experts and to provide them with the proper training and guidance on what to look for. we are currently trying to do this and have recently hired an external consultant to help us to develop the right processes and techniques. this is part of a more general move to enhance our supervision to make it more sensitive to the various types of risk with which our banks are faced, and more focussed on the processes used for managing those risks. this becomes all the important in the new economy, because although technological change presents obvious new opportunities to the banks, it also magnifies their risks in certain respects and increases the complexity of their business. security risk is one clear example of this, as i have already mentioned. but increased liquidity and credit risk could be added to the list - the former because the internet will make it easier to move funds between banks at the touch of a button and the latter because banks may in future have a more transitory relationship with their customers. technology risk is also a concern. with technology changing so rapidly, it becomes more vital that banks invest wisely in new systems and choose the right moment to do so. early movers run the risk of being saddled with systems that do not work as promised, or which quickly become obsolete. equally, there is the risk of being left behind by competitors if you wait too long. such considerations mean that it is essential that banks have a sound strategy and good systems of risk management. the main responsibility for this rests with the board of directors and with senior management, although the regulators also have a

false starts and failures before the business models that can successfully exploit the new technology emerge. this period of uncertainty poses important strategic challenges and increased risks for the banks in their role both as major users of the technology and as providers of funds to the companies which are putting that technology in place. banks, like other companies, need to discover what will or will not work in the internet world. they are thus exposed to their own mistakes. but they are also exposed to the potential mistakes of their customers. for example, if the telecom companies in europe really have taken too big a gamble on 3g, this would have repercussions for the banks that have financed them. these challenges are also confronting banks in asia as they recover from the hangover of the asian crisis. i do not think that bankers anywhere would ever claim that they have an easy life. but certainly the existence for banks in asia before the crisis was easier than it is now. if i take hong kong as an example, the banks here have always competed actively. but that competition was taking place in a buoyant market, whereas business is currently much harder to find. a few simple statistics illustrate the point : in the six years from 1992 to 1997, domestic lending by the locally incorporated banks grew at an average rate of 21 % per annum, and pre - tax profits rose at an annual rate of 15 % during the same period. in contrast, the equivalent annual figures for the three years to mid - 2000 were 1¼ % and 4½ % respectively. it is true that bank profits staged a sharp recovery in the first half of this year. but growth in bank lending has remained sluggish. bank liquidity remains at historically high levels, and this, coupled with the fierce competition for new lending business, has pushed down lending margins, particularly in the all - important mortgage portfolio. it is not only that the market is not growing as fast as it did. the traditional, local players are also beginning to encounter more pressure from global firms, non - bank entrants and competing sources of finance. the competitive environment is giving added impetus to the need for banks to consider how they can use the new technology, and particularly the internet, to drive down costs and broaden income sources. in hong kong around 20 banks have introduced transactional banking services for retail customers. many have already introduced corporate banking services through the internet, or will shortly do so. so far the take - up of these services seems in general to be