yet, has warned that Government's pursuit of an Independence referendum is risky and could hurt the international business sector.

Warning that the world economy was not far removed from another cycle of recession, the bank's chairman, Mr. Eldon Trimingham, and president Mr.

Charles Vaughan-Johnson said in a report to shareholders that the build-up to an Independence referendum was causing severe uncertainty overseas.

"It is the considered position of the bank that the risks implicit by the present course are inconsistent with the best interests of Bermuda,'' the report said.

It is the second time in less than a month that the bank's hierarchy has complained that the Independence issue could damage the economy.

The bank said Independence was subject to three vital factors: A stable political scene, support systems and services, and, quality amenities. The removal or shakiness of any one of the three, said the bank, would destabilise the Island's way of life and economic success.

"The issue of Independence has raised a spectre of potential (political) instability. Visits by our people around the world are peppered by questions of Bermuda's intentions and the uncertainties which the question of independence generates.

"Many of our clients and other international business managers clearly state that backing by a major power is important. Nobody is `independent' these days.'' Noting Bermuda is a small community with few resources to support itself in times of need the bank said the Island's political stability and security as needed some "immediate evaluation''.

"It is, we think, the fact that a referendum is promised and that Independence may well actually occur should the referendum go that way, which is creating the apprehension,'' they said.

The bank urged calm and unemotional debate in order to "eliminate the uncertainties which inevitably hang over Bermuda during the interim period, whilst the subject is being considered''.

"We are concerned that the emotional and nationalistic build-up to referendum day may well be enough in itself to cost us our business and our Bermudian way of life that it provides.'' The bank also said Bermuda is in a better economic position than it was twelve months ago, with growth in international business, due to new reinsurance operations and the steady growth in the worldwide mutual fund industry.

But there was not the anticipated growth in tourism despite some marginal increases in arrivals, it said. No matter the pluses that include a new Frankfurt flight and increased tourism spending, the bankers lamented "in general our recovery is stumbling, unlike the United States''.

"It is our view that the tourist industry needs urgent attention to correct inadequacies of the poor service, aging facilities and high rates, particularly in the major hotels,'' they added.

They said that although inflation may remain in check for one or two years, the absence of economic momentum and the lack of consumer-driven growth, especially in tourism heralded a flat economy for the near future.

"In the nature of things, we may be looking at the next cycle of recession almost before we are out of the current one,'' they said. "Interest rates in the US and hence in Bermuda are unlikely to continue to increase through 1995.

The current Bermuda level of inflation at 2.5 percent may not continue for very much longer, as the money supply increases and Government borrowings increase.''