Depositors pay the price as lenders show little interest

PUBLISHED : Saturday, 18 December, 2004, 12:00am
UPDATED : Saturday, 18 December, 2004, 12:00am

Forget about playing the national anthem before the main news and all those slogans dreamt up by overzealous politicians. When it comes to building national identity, actions always speak louder than words.

Unfortunately, in our case, it is usually corny images of athletes marching into Olympic opening ceremonies.

So, to better illustrate our independence from the western world, I propose we turn to our business community for a change, given that Hong Kong banks this week yet again showed us a perfect example of how to say no to America.

Mindful of the $16 billion aggregate balance sitting in the banking system, our lenders on Wednesday unanimously declined to follow the latest interest rate increase by the United States Federal Reserve - its fifth for the year.

Yet, there is no such thing as a free lunch and, as with everything else, independence comes at a price.

Our lenders' decision to keep interest rates unchanged - savings deposit rate at 0.001 per cent and prime lending rate at 5 per cent - means net interest margins may remain narrow.

And, if we take what happened a year ago as a model, it is likely that when banks announce their results in three months' time, we shall hear them again blaming a net interest earnings shortfall on low rates.

They are not alone. The outlook is equally bleak for depositors, as the annual interest rate for every $1 million deposit in a savings account stays at $10.

enter the saviour

Of course, there are always exceptions.

For ultra-conservative depositors who just cannot bring themselves to put their money anywhere other than in savings or fixed-deposit accounts, here comes their saviour, albeit one that is desperately trying to redeem itself after one of the biggest blunders in the history of the banking industry.

Singapore-based lender DBS Bank this week announced a new set of special interest rates on all Treasures priority banking accounts and DBS Wealth accounts, on the condition that funds must be brought in from other institutions.

In normal times, such promotions are usually gimmicks that probably give you a few basis points above current market rates.

Yet the bank's 2 per cent interest rate on savings deposit is 2,000 times more than the prevailing rate, while the fixed-deposit rates for the various terms are all way above the market average.

Needless to say, the promotion is another move by DBS to make up for the public relations disaster brought about by the accidental destruction of hundreds of safety deposit boxes at its Mei Foo branch.

options galore

While banks and depositors bemoan the low interest rates, people with a bit of disposable income who are willing to take some degree of investment risk should be happy with what they see these days.

There are now so many options to bank deposits, some with more or less the same risk levels, that the problem is picking the one with the best returns.

We have talked about several guaranteed funds and guaranteed notes over the past few months.

Indeed, the market has become so crowded that some experts have predicted an imminent exodus of fringe players when fund houses are no longer able to raise their targeted amounts from the public.

So let us turn our attention to something else.

How about a Christmas gift from HSBC?

Hong Kong's largest bank is now offering four new tranches of certificates of deposit that pay annual interest rates of between 1.75 and 3.23 per cent.

On offer until Christmas eve, the tranches come in US and Hong Kong dollars with denominations of $50,000 and US$10,000 and maturity terms of one and two years.

toothsome card

Credit card specialist American Express this week continued its assault on high-income professionals, launching a joint gold card with the Hong Kong Dental Association.

While the company's press statement says the card is aimed at the city's 'dental professionals', judging from the $980 annual membership fee, we doubt whether any dental professionals other than the dentists themselves would be able to afford it.

Aside from the card's design - showing the association's logo and nothing else - it carries basically the same features as a regular American Express gold card.

baiting the money

While we await the final outcome of the Link Reit fiasco, several banks have already come up with plans to capture the money investors had originally earmarked for that and other recent initial public offerings where they have failed to obtain an allotment. But more of that next week.