However, those previous record-low interest rates had opened the window for the emergence of exotic 'structured products' such as equity-linked notes, credit-linked notes and similar types of structured deposits to which customers turned to improve the yields on their deposits, and which bankers were keen to offer to earn fees.

'Structured products were well received in the last few years, as investors looked for higher yields, due to the low deposit-rate environment and the unsatisfactory performance of the stock market,' said Andrew Au Siu-sai, senior vice-president, structured products, at SG Securities (Hong Kong).

But now banks, their customers and the industry regulator are left to puzzle over the question: 'Are those new products that became so popular deposits or investments?'

The debate has been prompted by the introduction of the Deposit Protection Scheme due to be implemented in the second half of next year. It will insure customer deposits of up to $100,000 against loss but will not cover investments.

Raymond Li Ling-cheung, chief executive at Hong Kong Deposit Protection Board, said it was important to let customers know whether the money they put into structured deposits would be treated as deposits for the purpose of the scheme, or investments.

But given the range and complexity of the products, this might not prove easy. 'It's hard to generalise whether structured deposits are deposits or investments. I would suggest banks seek legal advice case by case,' he said.

However, banks are uncomfortable with this uncertainty, and one banker said: 'If there are different interpretations whether certain type of structured deposits were protected, it will create confusion. We hope there will be some consensus or standardised definition.

'In Singapore, it is clearly said that only savings and fixed deposits in Singapore dollars are protected [under their scheme].' Mr Li , who is also executive director, banking policy, at the Hong Kong Monetary Authority, said the board was currently drafting a 'representation rule' which would require banks to explain to clients how their deposits were protected under the scheme.

If the products were defined as deposits, it would mean that investors would be entitled to protection under the DPS.

Conversely, if a structured deposit was recognised as a pure investment, it would not be protected, he said.

'There are different treatments according to the experience of other countries. Products with investment elements are not covered [under their protection scheme] in some countries. However, products in which the principal is guaranteed are covered,' Mr Li said.

Under the DPS in Hong Kong, all depositors will receive full payment of deposits of up to $100,000 if a bank collapses.

Mr Li said the value of structured deposits issued was relatively small compared with Hong Kong's total deposits, which stood at $3.8 trillion.

He said apart from their investment in structured deposits, investors usually had other deposits which might well be over the protection ceiling.

'So whether structured deposits are protected or not under the scheme, they may not have a significant impact on the overall picture, which is the number of depositors and amount of deposits being protected,' he said.

However, the issue needed to be clarified not only to avoid future arguments, he said, but to help in designing a data information system for the scheme.

Hong Kong banks will have to provide data, including deposit details, which will enable the board to calculate premiums each bank will have to pay into the scheme, and allowing for prompt payouts to be made in the event of bank collapses.