Citibank raises rate to lure term deposits
Annual interest of 3.6pc expected to put the pressure on smaller local lenders
Citibank has aggressively increased term deposit rates through a promotion that will increase the struggle between small- and mid-sized lenders to secure stable funding sources and step up the battle for new customers.
By paying an annual interest rate of 3.6 per cent on deposits of at least $100,000, tied up for six months, the US bank is offering the highest rate in the market, said observers.
Fierce competition for deposits means that Hong Kong banks are looking to secure funding, especially with tenors between one and three months, said Brian Cheung Nam-chung, senior manager at Liu Chong Hing Bank.
'The US Federal Fund rate is expected to rise another 0.75 percentage point by the end of the year and lenders want to lock up cheaper funding in advance,' he said.
Mr Cheung noted that some banks - including Liu Chong Hing - had periodically offered depositors rates of 3.5 per cent to 3.75 per cent for deposits over $1 million.
Rising interest rates mean that banks need to lock in relatively low-cost funding while many are hoping to secure new customers by offering attractive deposit rates - a move they hope will allow other products and services to be sold.
Hong Kong banks have sought to diversify away from their traditional interest-bearing lending business to pursuing fee-based income derived from selling insurance and wealth management products.
Money market rates for three-month and six-month rates stood at 3.645 per cent and 3.835 respectively on Friday, a slight decline on the previous day.
Citibank's new deposit account requires a minimum deposit of $100,000 and up to a maximum of $5 million invested for six months.
The 3.6 per cent annual interest rate is double that of comparable saving rates of 1.25 to 1.5 per cent, it said in a statement yesterday. Should cash be withdrawn before maturity then customers would receive a rate of 1.8 per cent.
The offer is available until September 3.
Most banks offer deposit rates of about 3 per cent for six-month time deposits; Bank of East Asia is paying 3.08 per cent while, as of Friday, Liu Chong Hing Bank was offering 3.13 per cent for a time deposit exceeding $100,000.
'Citibank may have funding needs to meet its lending requirements. It offers a higher rate for retail deposits instead of borrowing from the interbank market, as it could help the bank to expand its customer base to cross-sell other banking products,' a banker said.
Hong Kong's three giant deposit taking lenders - HSBC, Hang Seng and Bank of China (Hong Kong) - account for more than half the city's deposits while money has increasingly moved from savings accounts to managed savings products such as unit trusts and guaranteed funds.
Many banks already offer higher interest rates for sizable deposits and for target customers such as those with wealth management accounts.
'Small and medium-sized banks will be looking for deposits to replace the outflow [to other savings products] so expect a series of new deposit campaigns to be launched,' the banker said.