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Enoch Yiu

Last week's long anticipated first move towards interest rate deregulation on the mainland means the country's banks can no longer sit back and take interest margins for granted.
They will now have to come up with new ways of making money.
The People's Bank of China cut the deposit and lending rates by 25 basis points last week. While it was the first rate cut since 2008, what caught bankers' attention was the central bank's first baby step towards freeing up the interest rate market. 
The PBOC said it was freeing banks to set deposit rates 10 per cent above the benchmark deposit rate and the lending rates 20 per cent below the benchmark lending rate.
This represents the first time mainland lenders have been given more flexibility to set interest rates. Unlike Hong Kong and most Western markets, where market forces determine deposit and lending rates, the mainland still has a highly regulated market in which interest rates are set by the central bank.
Hence, last week's move to open the door a crack means mainland banks must take a step closer to working like their Western peers. 
As a result of the reform, the deposit rate did not actually fall. While the one-year benchmark deposit rate set by the PBOC fell 25 basis points to 3.25 per cent, Industrial and Commercial Bank of China used its new discretionary freedom to set its deposit rate at 3.5 per cent. 
In effect, the bank kept the deposit rate where it was, avoiding infuriating the public by eroding the meagre return on their deposits. 
On the lending side, the PBOC cut the benchmark one-year lending rate 25 basis points to 6.31 per cent from 6.56 per cent. 
By making use of the 20 per cent leeway announced last week, commercial banks on the mainland can cut their lending rate to a little above 5 per cent. 
This is good news for businesses concerned about the credit crunch. The lower rates will help them weather the difficult economic times as US and European clients stop or slash spending. 
While lower rates are good news for borrowers, banks can no longer sit back and earn huge profits from a wide interest rate margin and now have to generate fee income from other businesses. 
But regulators will be watching them closely - one lesson learnt from the Lehman Brothers minibond fiasco in 2008 was that bank staff have to clearly explain the financial risks inherent in products that they sell to customers. 
If sophisticated depositors in Hong Kong could be fooled by some banks' mis-selling of products, there is no reason why the same thing could not happen in China.  
 Brokers' institute seeks to rebrand
The Hong Kong Securities Institute, which mans the barriers to entry for would-be brokers, will ask members next week for approval to change its name to the Hong Kong Securities and Investment Institute. 
For 15 years, the institute has provided training courses and set examinations for brokers, fund managers and financial advisers. Its mandate has since expanded to cover private banking, wealth management and credit ratings. 
The number of people who want to sit the broker's licence exam ebbs and flows in line with the stock market. 
As the stock market surged in 2007 and early 2008, the number of people enrolling for a broker's licence stood at 54,980 in 2007 and rose to 67,679 in 2008. 
But with the advent of the global financial crisis in late 2008, the number dropped by more than half to 33,861 in 2009 and 33,698 in 2010. It bounced back to 38,693 last year when the index resumed its climb.
Men make up 74 per cent of the institute's members - which shows it's still a man's world in the broking and investment sector.



Greater interest rate freedom forces banks to shift focus