Strapped for lending opportunities in an economy that's not expected to grow this year, banks also face the prospect of existing loans going bad after the jobless rate rose to a 21-month high of 5.8 percent in November, making it harder for individuals to repay their mortgages and credit card bills.

Next year is "going to be another tough year for the banks," said David Carse, deputy chief executive of the Hong Kong Monetary Authority. "A lot will depend on how quickly the US economy recovers and how fast the Hong Kong economy can follow. We expect to see some deterioration in asset quality."

Mid-sized lenders Wing Lung, Wing Hang and Dah Sing Financial Holdings Ltd. are among banks that analysts say may be targeted by lenders from mainland and Singapore, keen on a market that has seen half a dozen takeovers in the past three years.

Hong Kong banks' combined profits rose 7 percent in the first half, the HKMA said, though earnings fell in the first three quarters as net interest margins - measuring the return on loans against the cost of deposits - shrank to 2.15 percentage points, from 2.37 points in the same time last year.

"Nothing is not for sale," Wing Lung Executive Director Philip Wu said, adding his 68-year-old bank isn't now in takeover talks.

DBS Group Holdings Ltd., Singapore's biggest bank, bought Hong Kong's Dao Heng Bank Group Ltd. this year for US$5.4 billion. CITIC Ka Wah Bank Ltd., owned by China's biggest investment firm, bought HKCB Bank Holding Co.'s banking business for US$538 million, Bloomberg News reported.

Dah Sing said it's in talks to sell its 30 percent stake in three-branch lender Jian Sing Bank Ltd. China Construction Bank, which owns 70 percent of Jian Sing, is reportedly the buyer, as China's third-biggest lender moves to build Hong Kong as a center for international expansion.

Many family-run Hong Kong banks refused to sell to rivals for years. That changed with the 1997-1998 Asian crisis, which hurt earnings and prompted Kwong On Bank Ltd.'s 1999 sale to DBS and last year's sale of Union Bank of Hong Kong Ltd. to Industrial and Commercial Bank of China.

(eastday.com December 27, 2001m)