Banks increase interest payout
HONG KONG banks reacted to further liberalised retail interest rate market yesterday by increasing interest paid to depositors by between 50 and 125 basis points a year.
Liu Chong Hing Bank stood out as the most aggressive, marking up rates above interbank market levels - generally considered as the indicator of funding cost for banks.
Interest rates on deposits of less than $500,000 with a maturity of two weeks and one month will be paid 5.75 per cent and 6.1875 per cent, well above yesterday's respective interbank rates of 5.6875 and 5.875 per cent.
The interest rates for these two types of time deposits under the interest rate rules were 4.25 per cent and five per cent, respectively.
However, bankers said the bank was still paying less than the cost of issuing certificates of deposit (CD).
Hongkong Bank, the biggest retail deposit bank in the territory, added a mild increase of 25 basis points on its one-month time deposit of more than $100,000.
Rates on two weeks call and deposits of less than $100,000 are unchanged.
Analysts estimate that big retail banks, constrained by an enormous retail deposit base, cannot afford big rate rises to constrain funding costs.
Most banks adopted a tiered approach.
Hang Seng Bank set the watershed point at $30,000. Deposits of more than that amount fixed for two weeks and one month will enjoy higher rates of 5.5 per cent and 5.75 per cent.
That marks an increase of 125 basis points and 75 basis points, respectively, over governed rates.
'The revised rates are actually the swap deposit rates the bank offers,' a Hang Seng spokesman said.
Standard Chartered Bank practises a similar strategy with $30,000 as the dividing line. Rates offered on the two maturities were 5.375 per cent and 5.5 per cent, respectively.
Nanyang Commercial Bank gave a slightly higher rate of 5.0625 per cent on deposits of less than $30,000 fixed for one month.
For sums more than that, the rates were similar to the Hang Seng Bank.
Yesterday marked the second phase on liberalising interest rates on time deposits when all rates on time deposits of more than seven days will be freely floated.
The third phase, in April, will lift controls on all time deposits of more than 24 hours.