taxes in 1996, because of the economy's anaemic performance, according to the Bank of Bermuda in a quarterly report to shareholders.

The letter released to shareholders this weekend urges Government to cut spending that would otherwise undermine future economic growth.

While concerned about the weakness in tourism, bank chairman Mr. Eldon Trimingham and president Mr. Charles Vaughan-Johnson believe that some of the deferred office construction is gearing back up since the outcome of the referendum.

The bank also reported: "The demand for consumer credit is quite strong and, with the referendum behind us, there is convincing evidence that the demand for credit in other sectors is also increasing.'' The letter held to the tone of the statement of chairman, Mr. Trimingham, last month at the bank's annual general meeting, when he told shareholders, "the Independence debate has distracted attention from a number of outstanding matters that have now become crucial''.

Those matters included an increase in rising violence, rampant drugs and pervasive crime.

The bank, however, said in its first quarter report that preliminary results for the three months to September 30 were meeting the bank's financial targets, with contributions from overseas offices steadily growing.

It credited better management of the balance sheet with higher returns and said earnings were at satisfactory levels.

The letter states that there remains strong demand for local and international services in Hong Kong and Singapore.

"The European offices are strongly supportive of our earnings and our new office in Dublin is now well established. The trend of business in our New York and Cayman Island offices shows steady improvement.

"We anticipate that the pattern experienced in our last financial year, of a contribution to earnings of 50 percent and upward from our overseas offices, will continue.'' The bank allocated a portion of its traditional redeposits with international banks to high quality government guaranteed notes and bonds, providing better liquidity with a greater spread of counter-party risk. Under constant monitor, adjustments to the portfolio are made continuously as fluctuations occur in international interest rates.