Deposit plan may launch in autumn

PUBLISHED : Saturday, 20 May, 2006, 12:00am
UPDATED : Saturday, 20 May, 2006, 12:00am

Banks play down likelihood of passing on costs of safety net for customers

The government is to implement its deposit protection scheme, which guarantees depositors will be able to retrieve up to $100,000 of their savings in the case of bank failure, as early as September 25.

The scheme will increase operating costs for the banks, because on average they will have to pay a 0.08 per cent premium on insured deposits annually for the first five years of a fund and 0.01 per cent a year thereafter.

Banks with higher levels of risk will be required to contribute more and market watchers expect lenders to pass on some of the increased cost to customers.

'They may not do that initially but I think eventually they will,' said Mak Sui-choi, associate professor of finance and decision sciences at Hong Kong Baptist University. 'In fact, banks have already imposed charges [on certain banking services].'

Stanley Wong Yuen-fai, executive director and deputy general manager at ICBC (Asia), said banks could not pass all the costs to customers due to competition but might cut their deposit rates to offset the additional expenses.

However, Dah Sing Bank managing director Derek Wong said the bank had no plan to pass on the cost to customers after the implementation of the scheme.

'Operating costs will rise but I don't think it will have too much impact on profitability,' he said.

Even though there has not been a major bank failure in Hong Kong for many years, the government aims to bring the local banking industry on par with international practice with the scheme.

Under the proposed scheme, about 84 per cent of depositors and 16 per cent of deposits by value at retail banks will be insured.

The legislation related to the establishment of the deposit protection scheme will be tabled before the Legislative Council for vetting next Wednesday.

Raymond Li Ling-cheung, the chief executive of the Deposit Protection Board, which will supervise the scheme, said it could be launched as early as September 25 although the exact date would still depend on the outcome of the Legislative Council meeting.