Canadian visitors spent $61 more but are only 9.3 percent of North American visitors.

Positive aspects of the economy came from international business while the continuing low annual inflation rate, 2.3 percent at end September, was called is a good sign.

Annual gross domestic product is now over $2 billion, growing at four percent per annum.

On its international operations, the bank said opportunities continue to develop in the Americas and a trend of excellent performance from Asia Pacific operations is expected to continue through 1997. Results from the bank's six European operations continue to be satisfactory.

Marketing has produced significant mutual fund business for Bermuda and Cayman offices.

Contacts in South America, principally in Chile, Brazil and Mexico, continue to contribute to the bank's book of new fund business. Cayman appears to be the preferred jurisdiction for such Latin American source business and for fund business by Japanese entities, the bank said.

"Efforts to market private banking services in South America are beginning to bear fruit.'' The bank now has an established and growing South American private client base to which it provides asset management, stock broking, credit cards and margin and loan facilities. In 1997, the bank will expand its South American marketing with visits to Ecuador and Peru.

Shifting to its international commentary, the bank said the financial market outlook appears somewhat uncertain as the new year begins.

"Events in recent years have amply demonstrated that it is the readjustment of expectations that produces the most severe and sudden changes in market prices.

"By their very nature, such events are unforecastable, but the current environment seems to be one where the risks of such an occurrence are high.'' The bank also said that the Federal Reserve Board may soon rein in US expansion "given increasing restraints on capacity as the economy continues to grow at a rate in excess of its potential.'' On Japan, the bank said doubts over sustainability of recovery persist despite figures confirming private sector demand has surpassed government stimulus.

More importantly, it appears Japan's banking sector problems are in the past and moves will support the economy rather than repair bank balance sheets, possible ending record low interest rates.

In Europe, financial markets have recently focussed on monetary union.

Governments efforts to produce 1997 budget forecasts that fulfil the Maastricht Treaty of not exceeding three percent of gross domestic product resulted in the assumption that fiscal policy will be a major drag on economic development.

However, the bank said fiscal stance is nowhere near as restrictive as targets imply and unlikely to offset stimulus provided by lower interest rates. Ample spare capacity should not provoke an aggressive response from authorities but present expectations of a continued friendly interest rate environment are likely to be disappointed, the bank said.

VAUGHAN-JOHNSON -- Solution `increasingly urgent'.