As a leading financial center in the Asia Pacific region, Hong Kong is marked by a large pool of skilled expertise, sound regulatory and business environment and advanced business infrastructure. However, the prominent status of Hong Kong is not devoid of dispute, there are many competitors, such as Shanghai and Singapore, who consistently challenge its leading position in the Asian financial market. In order to stay ahead in the contest, actions should be taken to strengthen the competitive edge of Hong Kong.

To preserve the superiority, banking industry which is the core indicator of a city¡¦s status as an international financial center, is at the center of attention. Banking industry has been a key component in Hong Kong economy, its wax and wane is closely tied to the development and prosperity of the city. For example, in 2004, the value-added of the industry is $100.5 billion, which is equivalent to 8.0% of the GDP at factor cost [1]. Meanwhile, in Sep 2006, the banking industry employed 81,619 people [2]. These signify the importance of the industry to Hong Kong economy.

The industry is under the supervision of the Hong Kong Monetary Authority (HKMA) and is governed by the Banking Ordinance and other legislations. Currently, the banking system adopts a three-tier classification in which authorized institutions (AIs) are divided into Licensed Banks (LBs), Restricted Licensed Banks (RLBs) and Deposit-taking Companies (DTCs). Apart from the above three, foreign and mainland banks maintain their presence through setting up local representative offices. The distinctions among the different types of bank mainly lie in the different types of deposit services that they are allowed to offer. According to a survey conducted by the Census and Statistics Department, there are 200 AIs in Hong Kong as in May 2007.

The banking industry of Hong Kong has splendid record in the arena of international financial market. According to the Hong Kong Industry Profiles provided by Hong Kong Trade and Development Council, the banking center is the 3rd largest in Asia (in terms of external transactions). The banking sector is also the 2nd largest loan syndication center in Asia Regions and the 6th largest foreign exchange center in the world.

Meanwhile, the pressing challenges and threats ahead call for the industry to carefully review its existing strategies and capabilities. Mainland China is one of the most fast-growing emerging markets with massive economic potential. Owing to the close tie between Hong Kong and China, the thriving of China definitely opens up a torrent of opportunities. On the other hand, this may heighten the competition faced by Hong Kong, as many observers speculate the rise of some mainland cities will supersede Hong Kong as the leading financial center in China in the near future.

Coincide with the quest of consolidating the footing as a leading international financial center, Education and Manpower Bureau (EMB) has advanced the Qualifications Framework (QF) in 2004 which aims at providing an opportunity for lifelong learning to the workforce with the ultimate mission of cultivating a pool of high standard and competitive employees. Details of the QF can be found in the next chapter.

QF is about qualifications recognition in academic, vocational and continuing education. It adopts a seven-level cross sectoral hierarchy to describe the qualifications requirement of different levels which is purported to facilitate the articulation pathways among qualifications of different levels. Under the project of QF, a set of Specification of Competency Standards (SCS) will be developed for each of the selected industries. SCS comprises a set of core competencies which describe skills, knowledge and attributes that are required by the industry. SCS can be further customized to serve as an objective basis for education, training, qualification recognitions and human resources management etc. in individual organization. Nevertheless, the QF is a platform where different stakeholders can find useful information related to the qualifications or competency requirements of the sector. To cater for different purposes, readers can tailor the information according to their own needs.

The EMB has assisted different industries to set up their Industry Training Advisory Committees (ITAC). ITAC plays the advisory role on manpower development through offering advice to the government and industries. In order to realize the above mission, ITAC is responsible to develop, maintain and update SCS and develop a mechanism on Recognition of Prior Learning. Banking industry has also set up its ITAC which consists of representatives from employers, employees and relevant professional bodies.

Regarding the construction of QF for the banking industry, owing to the immense scale and the diverse nature of banking business, the Banking ITAC agreed that the development of QF should be carried out in different phases. Moreover, as agreed by the Banking ITAC, the scope of banking industry can be further divided into five core business functional areas:

• Retail Banking
• Commercial and Corporate Banking
• Asset Management and Private Banking
• Investment Banking
• Treasury

As an initial step, a qualifications framework for the retail banking sector will be constructed. Retail banking is chosen as the pilot because it is the largest segment in the industry with the highest number of workers employed. As a result, it can be reasonably assumed that the future challenges and thrusts faced by the retail banking sector should be able to represent the industry-wide development to a substantial degree.

Banking is a multifaceted industry in terms of its composition of job functions. In addition to the core occupations of the well defined banking specific functions, it also involves diverse professions such as Information Technology, Human Resources and Accounting to support its operation etc. The scope of this SCS development process includes both categories of occupational functions while the emphasis is placed on the pure banking specific activities. For those supporting tasks or professions such as the examples exhibited above, the competencies developed will highlight only the ¡§application¡¨ of their specialized skills and knowledge under the particular context of retail banking.

In the following section, an analysis is carried out to examine the external environment in which the banking industry is embedded in, while, implications drawn will be focused on the impacts on the retail banking sector.

As a first step to build up a qualifications framework, it is recommended that a critical review of the macro environment to be conducted so as to figure out the future challenges facing by the sector. The present project will adopt a systematic approach advanced by PEST, in which Political, Economic, Social and Technological factors are evaluated in the process of environmental scanning.

Political Factors: Political factors define the boundary of the environment (e.g. constraints, push or pull factors) which the retail banking sector will operate in. It has important implication on which business approach can be adopted or is more suitable. Tax policy, regulatory requirements and political stability fall into this category.

Economic Factors: Factors such as GDP, interest rate or inflation rate are examples of economic factors. These factors determine the disposable income or purchasing power of customers, which signify the potential of the market.

Social Factors: This category refers to demographic variables, attitudes or lifestyle of the customers. They are influential in shaping customer preferences and determine demand for different products and services.

Technological Factors: Factors such as pace of technological changes, level of Research & Development activity etc. affect the cost, production levels, and capacity of a bank. Technological factors are critical determinants in a competition.

As each of the four factors covers a massive range of issues, the present analysis does not intend to carry out a comprehensive and inclusive evaluation; instead, only factors that have substantial impact on the banking industry are selected and reviewed in the following section.

Increasing Sophistication in Banking Activities Calls for More Stringent Regulatory Requirement and Risk Management Practice

(i) Global Trend

A surge of consolidation activities in the banking industry can be witnessed in the recent years. Moreover, globalization is taking place at a high velocity due to the growing popularity of off-shoring and the pressing need to expand into new markets. The rapid expansion and the increasing competition lead to the proliferation of products and services which largely increase the sophistication of the banking activities. The rapid expansion signifies the need for higher transparency of bank activities and closer supervision from different regulatory bodies. As a result, it can be foreseen that more stringent regulations will be imposed to ensure the transparency in financial reports and to prevent accounting scandals such as the case of Enron in the 2001. For example, US passed the federal law ¡V Sarbanes-Oxley Act of 2002 to enhance the standard of auditing and company disclosures in financial reporting. Similar regulations have been launched in other countries such as Canada and Japan. Basel II is another example illustrating the increasing supervisory control and disclosure requirements imposed on banks. Basel Committee on Banking Supervision issued the Basel II which recommends a set of regulations to govern the quality and adequacy of capital. It is an action to further consolidate the stability and safety of the international banking system through the adoption of more advanced and risk-sensitive management practices.

On the other hand, to stem the illegal flow of money, regulations on anti-money laundering is growing in importance. Banks are required to monitor any suspicious transaction. To meet with the requirements and be protected from the potential financial and reputation risk, a higher standard of intelligence system is required to verify customer¡¦s identity, the source and the destination of deposit.

Taking the regulatory demands into consideration, more money will be poured into the development of information technology system. The installation of new IT system can help the banks to handle extra tasks created by the regulation; moreover, it can augment the capability of banks in risk management by assessing credit risk and return rate of different customers.

To synchronize with the global trend, the Hong Kong SAR government has decided to adopt Basel II in 2007 from January. To allow banks to have a greater control over the implementation cost, the current framework advanced by HKMA offers a wide range of calculation methods for credit risk, market risk and operational risk to choose from. By adopting the latest practice regarding risk management, banks can better identify credit quality of different borrowers and can structure the pricing accordingly. Meanwhile, in order to maintain the status as a global business and financial center, continuous amendment and upgrade in regulations related to listing, financial reporting and company ordinance etc. will be introduced in order to meet with the market changes and challenges.

The ever higher standard of compliance requirements has undoubtedly raised the risk awareness of banks. Unarguably, being risk sensitive is an imperative element for a stable and healthy banking system. Nevertheless, banks have to be cautious about being overly risk avoidant as undue prudence will fetter their agility in business movement and may hamper their competitiveness. In short, banks are facing the challenge of making a sensible business decision within an acceptable risk level.

One particular regulatory issue which banks in Hong Kong cannot afford to overlook is the China¡¦s banking laws and regulations. Understanding of the legal system in Hong Kong as well as that of China represents a major challenge for banks who would like to expand into the mainland market. As the two legal systems vary considerably, absence of profound knowledge in their differences will put the bank in great peril.

• In order to fulfill the compliance requirement, banks may require installation of new IT infrastructures which may entail large sum of capital. In order to reduce the cost, banks have to think of ways to spread the investment enterprise-wide.
• Regulatory requirements increase bank¡¦s awareness of the different risks run by them and become more cautious when managing their assets. On the other hand, they have to be cautious of losing business if they are over risk avoidant.
• Due to the increasing business transaction with mainland individuals / institutions, besides knowledge in local legal system, banks also have to familiarize with the mainland legislative environment.

In the recent decades, the role of enterprise in the society is under the spotlight of public attention. The concept of Corporate Social Responsibility (CSR) is catching on big; advocates of CSR propound that besides statutory obligation, a company should also commit itself to the interests of different stakeholders such as customers, employees, communities and so on. In the past, financial factor may be the sole concern of some enterprises when they are making business decision. However, nowadays, an enterprise has to pay attention to the possible long term consequences of their action on environmental, ethical and cultural issues etc.

On the other hand, when customers are becoming more vocal and media is growing to be more influential, public relationship management emerges as one of the most strenuous tasks to handle. Large scale sentiment and unwanted publicity will cost banks reputation and customers. In order not to create any unnecessary predicament, banks will try their best to avoid provoking any group by being tactful and diplomatic in handling the execution and dissemination of their initiatives.

Hong Kong shares the same challenge in public relationship management. Not only are Hong Kong citizens vocal, but they are also highly aware of their rights to voice out their opinions and to protect their interests. The vociferous and widespread arguments expressed in the incidents of counterfeit bank note, branch closure and operating hour amendment are illustrative examples of the potency of public opinions. Moreover, in the context of Hong Kong, media plays a decisive role in social event, their reporting is crucial in shaping public opinions.

• The media and different stakeholders will become more powerful and will continue to exert pressure on bank¡¦s decision. Managing the relationships with different stakeholders and building up a positive corporate image will become a challenge to banks.

In order to spread the reach in different markets, large banks engage in a wave of acquisitions activities which results in the decreasing number of mid-tier bank players available in the market. For example, in US, the 10 largest commercial banks in the country own 49% of the total banking assets, as opposed to 29% a decade ago[3].

On the other hand, the emergence of non-traditional players in the field such as industry specialists and non-bank banks will significantly alter the competitive environment:

• Specialized banks enjoy the benefit of market differentiation, better positioning, personalization and greater freedom in client selection
• Specialist service providers are superior in operational functions, customer intimacy and capital management
• Non-bank banks benefit from their established brand name, widespread distributor network and capability in providing competitive pricing

In Hong Kong, banks of smaller scale are facing the threat of being weeded out. In the recent years, the pace of development in banking products and services is astonishingly fast, which make some banks incapable of catching up as they does not have enough resources to be put on R&D. While international banks can spread the huge R&D cost globally, small banks cannot enjoy the economies of scale. Therefore, small banks keep loosing customer as they do not have comparable products and services. Meanwhile, new entrants of the markets, especially Chinese banks, may want to use acquisition as a means to consolidate their business in Hong Kong. Mergers and acquisitions activities have remained active throughout the past decade. In the long run, it is expected that shares of the banking market will become more concentrated in the hands of a few major players. In 2006, the top six banks in Hong Kong own 47.4% of the total banking assets[4] which is similar to the percentage in US.

Besides the decreasing number of banks, products and services provided by banks may become more specialized in the future. Competition among banks will diminish the profit margin. To sustain competitiveness, banks have to review their business strategies and find a position where they can operate with competitive advantages. In the future, banks may sell out business which are operating at a loss and concentrate only on functions which they are having a niche. In other words, instead of operating full scale at all spectrum of services, specialized banks with dedicated functions may become more popular.

• Competition will become more intensive in the future. M&A will continue and smaller banks face the risk of being weeded out.
• To stand out, differentiation emerges as the key operating strategies. Banks in the future can specialize in the most profitable components and distribute non-core business to external specialist

In the near future, Asian markets are expected to be the major engines to fuel the global development. Economic growth in the Asia Pacific regions represent an attractive slice in the global banking industry which has put forward inestimable business opportunities. For instance, the saving rate in Asia (as a % of GDP) is substantially higher than most North American or European countries[5]. A report by Deloitte[6] revealed that the level of personal saving in China and India is growing drastically with a rate for 83% and 141% from 2000 to 2005 respectively. In a similar vein, the report also claimed that there was a remarkable increase in the number of bankable households from 260 million in 2000 to 440 million in 2005 in the Asia Pacific regions.

In short, capital has been moving away from North America and Europe to the new emerging markets in Asia and Latin America. Despite the buoyant outlook, worries loom out as these markets may not have the necessary infrastructure or conditions to support the influx of capital.

When talking about the impact of the growth in Asia Pacific regions, issues related to mainland development are imperative to Hong Kong. When China entered into the World Trade Organization (WTO) in 2001, it committed to open its market to foreign banks in the year of 2007. This brings a wave of challenges and opportunities to the Hong Kong banking industry. Pessimistic views posit that the growth of some Mainland cities may divert financial activities which are taking place in Hong Kong now to other parts of China. On the other hand, the growing economy of China definitely has brought salubrious influence to Hong Kong. For instance, as the gateway to China, Hong Kong is acting as a financial hub which channel foreign investment into the mainland. Likewise, alongside with the liberalization of China¡¦s market, foreign enterprises who intend to enter China will demand more professional services from Hong Kong. With the open up of RMB business, Hong Kong may emerge as an RMB offshore center in the future.

Moreover, Hong Kong also provides a platform for capital raising and risk management for mainland. The implementation of the Qualified Domestic Institutional Investor (QDII) scheme is particularly important to Hong Kong as the relaxed capital control brings in vast demands for financial services. To channel the huge amount of savings accumulated into high return investment is the major challenge faced by Hong Kong financial industry. Moreover, Hong Kong serves as an important capital raising channel for mainland enterprises; not only does this brings vast amount of savings into the banking system, it has also stimulated business in other financial functions such as asset management, underwriting and stock transactions etc.

Besides contributing to the boom of financial activities in Hong Kong, the open door policy of China also gives rise to a completely new line of business opportunities when banks in Hong Kong set up branches and start business in the mainland. The vast market in China definitely provides innumerable business volume; nevertheless, how to manage cross boarder business will prove to be a complicated issue to tackle.

In conclusion, endowed with a sound and stable legislation system and outstanding banking expertise, Hong Kong can secure its leading position as a financial intermediary between China and the rest of the world and hence to facilitate the flow of capital into China and sustain the rapid rate of economic growth. Moreover, the close link with China and the world class standards in financial practice set Hong Kong apart from other competitors and give it an edge in capitalizing the business opportunities brought by the prosperous market. Gradually, Hong Kong will transform into a financial hub for raising capital and asset management center for the Mainland.

• The opening of Mainland¡¦s financial market will bring a lot of challenges and opportunities to Hong Kong. An increasing portion of bank¡¦s business is coming from China market or derived from the business activities related to China. However, instead of generating interest income by offering traditional banking products such as loans and mortgage, Hong Kong may develop into a wealth management center for mainlanders and financial gateway for foreign investment into China.
• While increasing resources are invested in the China market, management of the cross border business is a critical issue which calls for attention.

Under the Interest Rate Rules (IRR) deregulation in July 2001, banks were granted autonomy to determine the interest rates offered to depositors. The interest rate liberalization opens up a new line of competition in the deposit market in which different banks adopt different rates in their pricing model. For example, in May 2007, there are two best lending rates at either 7.75% or 8.00%. This also led to the decline of net interest margin for retail banks over the last several years. Furthermore, after the open up of China market, lending business is facing competition with banks in the mainland, especially when entrepreneurs plan to set up their plants and factories in China, they may tend to secure loan from local banks there as they can enjoy a lower cost of capital investment when the RMB lending interest rate is lower than that of HKD.

With this backdrop, the business focus of retail banking gradually moves from lending to selling of financial products and wealth management. The proliferation of financial products such as trust fund, insurance, derivatives etc. is transforming the industry into a ¡§financial supermarket¡¨ with an assortment of products and services. It can be projected that the number of derivatives and debenture products will continue to grow.

The ever-increasing competition among different cities affirms the importance of Hong Kong to sustain its growth towards the destiny as an international financial center. In order to preserve its prominence in attracting foreign investment and uphold its world class standard as a financial service center, it is imperative for banks in Hong Kong to augment its competitiveness to meet with the challenges.

As a mean to enhance the capacity, banks adopt a series of cost-reduction initiatives. The trend of off-shoring which involve moving processes to lower-cost locations will become a main strategy to improve efficiency on one hand and enhance the quality on the other. It is anticipated that supporting functions, such as IT and audit, will relocate to areas where costs are lower. Moreover, sales and marketing staff will become the major component of workforce in the future banking industry.

On top of these, banks have to find ways to improve its competitive edge. In the coming years, with the highly advanced technology which has speeded up the invention process, competitive advantage brought by product differentiation is more difficult to sustain. Instead, human capital will become the major determinant to separate the winners from the rest of the banks. Therefore, it is undeniable that talent management will continue to be the focal point in the coming years when banks are competing for talents. In particular, the quality of frontline staff will become more critical to the performance of a bank as customer relationship management approach has become the main business development strategy. Simultaneously, customer profitability will become the major indicator of how much sales and marketing endeavor should be put on a particular segment. In a saturated and matured market like Hong Kong, a sharp increase in local customer base is highly unlikely. To sustain profit growth, it is expected that a substantial part of future revenue will be generated from existing clients. Therefore, business strategies of banks will focus on the high income net worth individual client group, which has the greatest potential in profit contribution. To meet this business goal, relationship management approach will be employed to capture the untapped potential in these clients. Banks have to go beyond the traditional transactional approach, rather they have to understand the needs of clients and meet their requirements accordingly. Only by doing this banks can convince their clients that they are offering high value products and services to satisfy their unique needs.

• Hong Kong is moving towards a fund management center which provides world class asset management services, retail products and other banking related products. This can help attract mainlanders to invest as Hong Kong is having a more sophisticated market with much greater variety of product choices than the Mainland.
• Supporting functions, such as IT, and audit may continue to migrate to China, India or other locations where banks can enjoy a pool of skillful labor at lower operational costs.
• For the sake of building up competitive edge and attracting profitable customers, banks will have a greater demand of talents for different job functions and find ways to retain them.
• On the side of retail banking, it is foreseeable that banks will have an inclined focus on developing the business of the high income net worth customer segment.

Coinciding with the transforming environment, characteristics of bank¡¦s customers will undergo a gradual change in terms of factors such as lifestyle, attitudes or behaviors and this may have important implications on the demand of banking products and services. In respond to the changes in customer profile, banks have to project the needs of the future population and revisit their current strategy to see whether the existing offerings are compatible with the changing demands.

The major changes of the customer profile outlined in a report compiled by IBM[7] are:

• There will be an increase in the relative size of oldest and youngest customer segment
• Regarding the attitudinal and behavioral change, customer will become better-informed, less loyal, more discerning, putting more emphasis on price-quality dynamics, and willing to pay more for premium products
• There will be apparent changes in the general life pattern in which people will marry later, divorce more, have second families and start second careers

On the other hand, average income will be spurred up by globalization in the next 25 years with the central role goes to those developing countries. It is predicted that the global economy may expand from $35 trillion in 2005 to $72 trillion in 2030[8]. In a similar vein, it is speculated that the number of middle-class consumers will reach 250 million in 2010[9]. The above evidence suggests that banks will face a group of more affluent customers in the future.

On top of the above changes, the rapid growth of information technology has also bring in some major changes to the landscape, customer now can access the information about the products and services offered by different banks in a convenient and speedy manner. As comparison between suppliers or brands is much easier, it is expected that customers will become more demanding in a sense that they are more price-sensitive and less loyal. However, it does not imply that customer loyalty has become an obsolete concept; surveys consistently revealed that majority of clients would prefer to employ a single bank if it can meet all their financial needs[10]. As a result, banks are facing greater pressure to build up long term relationship with clients.

According to the Census and Statistic Department, by 2031, the total population in Hong Kong will reach 8.72 million while growing steadily at a rate of 0.9% each year. Moreover, 93% of the population growth is resulting from immigration. Banks need to keep an eye on the trend in demographic variables and come up with products and services that meet the needs of the changing population. In the coming years, one of the major trends that will affect the financial needs is the phenomenon of aging population. Aging will continue to be a conspicuous concern, 24% of the total population will be aged 65 or above in 2031 as compared with 11% in 2001. The median of age will be increased from 37 in 2001 to 46 in 2031. Another tendency is that the gender ratio (males per 1000 females) will show a decrease from 956 in 2001 to 771 in 2031.

Another notable trend is that the proportion of mainland customers will increase continuously. The increasing number of visitors from China will bring in many non-local customers who possess unique characteristics and different financial needs. Therefore, in the future, mainlanders will become an important client segment and banks may need to customize their services to this particular group.

Moreover, banks are facing a more demanding group of customers nowadays in general. As customers are more educated and more familiar with financial products, they will demand more professional advice and comprehensible pricing schedule when making purchases. This undoubtedly has exerted a greater burden on frontline employees. As customers in Hong Kong get used to the high quality of services provided, banks have to think of ways to handle the ever increasing demand on customer services.

• The increasingly resourceful and demanding customers will be more powerful and have a higher bargaining power in the future bank-client relationships. It can be foreseen that their demand for products and services will become more diverse, value-oriented and eclectic.
• Mainland residents will share a larger proportion of the customer base of the banks in Hong Kong.

The sluggish growth rate in the age group of working people coupled with the retirement wave of baby boomers will sharply reduce the size of available pool of workers. Nevertheless, globalization increases the mobility of the workforce which can help relocating workers to areas with high demand for labor. Driven by the cost-reduction motive, the trend of moving operational activities to more educated and skilled workforce with lower production cost continues to grow. Managing off-shoring has become a core subject for banks.

Under the economic restructuring, Hong Kong is moving towards a high value-added production and a knowledge-based economy, for instance, as revealed by the 2007-08 HKSAR Government budget, services industries account for 91% of the current GDP and the trend of moving towards higher-end service jobs will continue. Moreover, financial services sector is expected to be a booming segment in the coming years. Its share of GDP has increased from 11% in 2001 to 16% in 2006 as stated by the Census and Statistic Department.

As a major segment in the financial sector, banks will demand for more highly educated workers in the future, therefore, relatively lower-educated workers are being culled from the labor market. In contrast, expertise from other countries, such as Mainland, will be attracted to come to Hong Kong. The keen competition and optimistic business environment make talent retention a critical concern of banks. The turnover rate of high performers is growing as there is an insufficient supply of talents in the market.

• Banks are now, and will be continuously facing the challenge of attracting and retaining talents. Ageing problem coupled with increasing competition in the financial industry may lead to shortage of qualified workers. On the flip side, the increased mobility means banks can find workers from different parts of the world. This fuels the new way of competition of available workers.

The rapid development and extensive use of internet lead to the expansion of communication networks, which are supported by broadband and wireless technologies via a faster, more affordable, and more pervasive connection. Consequently, there is a growth of increasing number of internet users which lead to the burgeoning of internet banking. Riding on this trend, it is speculated that radical changes will be introduced to the payment mechanism in the imminent future; customer in the coming days can utilize mobile phones or pre-paid cards to carry out different transactions including cross-border remittances[11].

Coping with the growth of internet banking is the highly controversial issue of information security in the form of identity theft or leakage of personal information. These may lead customer to raise doubt on the safety of online banking.

Nowadays, the major functions of bank branches are to carry out transactions such as money deposit and withdrawal. When internet banking and phone banking is becoming more popular, it can be foreseen that an increasing percentage of transactional banking activities will be carried out via internet. The transference of transaction channel can match with the cost-reduction motive of banks as the cost of human teller is substantially higher than ATM, telephone banking and internet banking. Nevertheless, it does not mean that bank branches will be completely replaced. Despite the diminishing number of branches in the recent years, banks still rely on them to provide a meeting place where their staff can interact with customers directly to clarify their needs and sell proper products and services accordingly.

Regardless of the indispensability of bank employees, Internet can overcome geographical boundaries and allow banks to enter markets which are previously out of their reach. For example, due to the cross border expansion and the increasing number of clients who are located in Mainland, Internet provides a mean of remote control and allows them to carry out transactions without being physically present in Hong Kong.

Besides, Internet technology may provide substantial room for banks to distinguish their commodities from those of others. With the highly advanced technology which has speeded up the product development process, banks can offer products which they cannot afford to put forward due to the high operational cost in the past, stock brokerage service is a case in point. Labor cost involved has been substantially reduced when electronic trading means is employed.

• Branch will remain an integral part of the multi-channel service delivery strategy, but more as a sale and service vehicle rather than a transactional device. Branch operation will become ¡§sales and customer centric¡¨. Frontline staff will engage more in selling products, while most part of the transactional tasks will be completed via the Internet.
• Banks will utilize the Internet as a market development device. The new platform provides an unprecedented entrance for markets with millions of people, particularly in emerging economy. Moreover, choices of products and services offered in the internet will continue to expand.
• Widespread digitization will increase security threats. Emerging technologies should be utilized to safeguard online security, customer authentication etc.

The advancement of technology represents a great leap in the communication efficiency and computing capability, which play important roles in honing the mode of competition in the banking industry. Cutting-edge technology can allow bank to deliver better customer services, lower operating cost (channel development) and better compliance and risk management, which are critical. Therefore, developing technology capability is gaining higher priority in a bank¡¦s development plan.

It can be seen that different banks are developing their technological capability; and applying the tools to a wider array of functions. Customer relationship management is a case in point. To stand out from the competition, banks gradually recognize the importance of customer relationship management. In order to attract and retain customers, it is essential that financial needs of individuals and businesses can be better discerned. With the help of more advanced data mining and intelligence system, the capability of banks in storing, tracking, analyzing and protecting data will be significantly enhanced.

On the other hand, technological advancement also augments the capability of banks ranging from the assessment of different kinds of risk to the measurement of return rate of different customers. It can help banks to better determine their pricing strategy and make final business decision. As a result, banks can offer services to a broader range of individuals, especially those segments which banks did not tap into before due to the previously non-measurable level of risk associated.

• Banks will increase their investment in technology, such as customer analysis device and risk assessment technology which can allow them to extract valuable information from multiple sources.

Upon the completion of the environmental scan which is employed to evaluate the political, economic, social and technological environment, future thrusts of the retail banking sector are identified. By recapitulating the collective views of experienced bankers, economists, HRM specialists and data gathered from literature research, the implications on the core functions and activities of retail banking are summarized as below:

Changes in banking industry are taking place at an unprecedented pace, the future outlook presents an intimation of human capital capability requirements as exhibited above on one hand while exposes a fundamental essence in the ability of Managing Change. Employees¡¦ adaptability to changes, their initiative to look for self-learning and business acumen etc. are all imperative elements to facilitate banks to thrive in the future banking environment.

By taking such a backdrop revealed from the environmental scan as a basis to identify job required competencies, a constructive and visionary platform of building retail banking qualifications framework is established. The competencies thus developed are more reliable and useful for retail banks and other industries to apply on different purposes. For retail banks, the most practical purpose is to employ the qualifications framework to identify and develop talents.

On top of signifying competencies that the talent pool of a retail bank should possess, the Qualifications Framework (QF) can bring additional value by helping a bank to delineate the competencies required for each department, unit, team and individual.

Competencies which describe the skills, knowledge and abilities required for different tasks, are the starting point of different people management processes. Many practices such as recruitment, training, performance appraisal, promotion etc. are developed and built on competencies. To develop an elite performer, we first need to identify the competencies requirement for successful performance of the role, then assess the performer against the stated competencies and identify the gaps. After that, we need to fill up the gaps by providing training or learning opportunities to strengthen the competences of the individual. Here illustrates the importance of competencies to people management and how the QF can be applied to a wide range of applications. The diagram below illustrates the different applications of QF:

In short, the QF outlines the competencies required by the whole retail banking sector which is organized under the hierarchy of functional areas, functions and tasks. However, as the competency standards provided in the QF is tasks based, for applying to employees holding different jobs / posts, users need to go through a simple customization process to pick out tasks relevant to the specified job / post from the 10 functional areas.

By applying the customization process, a retail bank can create competency profiles, an instrument which depicts clearly the knowledge, skills and abilities an incumbent should possess, for different jobs / posts easily. There are two main purposes of the customization process: to tailor the competency profile to (i) the requirements of different jobs / posts (i.e. matching) and (ii) different people management processes (i.e. HR tool development). The following paragraphs will describe steps of creating the job profile for a particular post.

At the outset, a bank should first defines the job roles / responsibilities of the specific job / post by referring to the post¡¦s specific job description in order to discern the tasks that the individual must perform. The job specification or description provided by the banks is a good starting point to identify useful information in defining the roles and duties for a particular job / post. During the process. After that, we can make use of the QF by surfing the tasks in different key functions of the 10 functional areas and to pick out tasks that is required to perform by the job holders. As the strategies, values, business focus, processes and products and services of each bank may vary, tasks performed by job holders with the same title may be different if they are working for different banks.

The next step is to identify the competencies required. With the identified job tasks in hand, we can find out the competency requirements of a position easily by referring to the QF. An individual can compile the competency profile handily by consolidating all the competence requirements.

Then we need to carry out validation for the competency profile. The draft of the competency profile should be evaluated by the existing job incumbents and supervisors to see whether the competency profile can be streamlined or there are any missing competencies to be included. Employees can add additional information specific to the bank¡¦s environment or customize the descriptions to better describe the working situation of the particular bank.

Up to this point, the matching process is completed and all the required competencies are identified. In order to facilitate the different people management processes, one needs to integrate the competency standards into the existing processes. The identification of competency requirement is important because by assessing the current performance of an individual against the requirements, the results can reveal objective and reliable information about the work performance of a job incumbent and his / her suitability to the job / post. These kinds of information are very useful for management in making decision to ensure that the bank has the right people in the right place and at a right time.

Therefore, as the last step, it is extremely useful to turn the competency requirements in the UoC into assessment plan which is suitable for various people management processes.

The following are steps to formulate customized tools based on the competencies identified:

1. Define the purposes of the application, such as recruitment, training or promotion etc. Understand clearly how the competency requirements of the jobs/ posts can contribute to the successful accomplishment of the process. i.e. outlining what kind of competency-related information (e.g. current level, relative performance, strengths or weaknesses) is needed.
2. After that, one should draw out the workflow of the whole process so that the role of competencies in facilitating the decision making process can be clearly defined thus laid down the direction for designing the assessment methods.
3. Following that, one should review the competency requirements of the relevant tasks and determine the necessary level of proficiency. Based on the information, one should proceed to outline clearly the specific assessment criteria which are the yardstick for decision making.
4. Then, based on the assessment criteria suggested in each UoC, formulate the measurement plan, such as measure method, interval, and assessors etc. to measure the competency attainment of different individuals. v. Lastly, carry out the measurement plan and collect information about the current proficiency level in different competencies. Based on the results, one can make decision for different people management processes such as whether the bank should recruit a candidate? What kind of training is required by an employee? Is the employee suitable for promotion? Etc.

With the QF, a bank can build its own competency framework and creates competency profiles for its employees more conveniently. There are many benefits brought by the QF:

• The development process will become more time efficient, the cycling time can be vastly reduced with the information provided;
• By using the information in the QF, a bank can simplify steps in conducting job analysis and can save substantial amount of resources;
• The production of the QF has involved hundreds of job holders and professionals in the retail banking sector. Therefore, there is quality assurance for the information provided; and
• The QF is adopted by the whole industry thus can provide a common and standardized language to different retail banks. As a result, banks can compare jobs / posts across functions, job levels and banks easily.

It is undeniable that the business environment of banking industry will keep changing. As an international financial center, Hong Kong should take proactive measures to catch up with the global development. Through setting up the foundation for education and training, the QF advocated by EMB serves as an imperative tool to prepare the industry for the future. It also sets the standards for Human Resources Management and Development. After accomplishing the above missions, the QF can definitely contribute to the industry competitiveness and strengthen the status of Hong Kong as an international financial center.

(1) Hong Kong Monthly Digest of Statistics, Feature Article ¡§The Banking Industry in Hong Kong, Census and Statistic Department, 2006.

(2) Quarterly Report of Employment, Vacancies & Payroll Statistics, Census & Statistics Department, 2006.

(3) Global Banking Industry Outlook: Issue on the Horizon 2007, Deloitte, 2007.

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(5) The Economist, International Monetary Fund

(6) The Engine of Growth: Retail Banking Customers Drive the Future of Financial Services in Asia, Deloitte Touche Tohmatsu, 2006

(7) The Paradox of Banking 2015: Achieving more by Doing Less, IBM Institute for Business Value, 2005

(8) Global Economic Prospects: Managing the Next Wave of Globalization, The World Bank, 2007.

(9) Global Banking Industry Outlook: Issue on the Horizon 2007, Deloitte, 2007

(10) World Retail Banking Report, Capgemini, 2005.

(11) Coming Soon to a Bank near You, The Banker, 2007.