Bank of China

Yuan deposits set to climb as HK dollar yields fall

PUBLISHED : Friday, 21 March, 2008, 12:00am
UPDATED : Friday, 21 March, 2008, 12:00am

The growth of yuan deposits in Hong Kong banks is likely to double this year after Hong Kong dollar deposit yields dropped to almost zero and as the mainland currency continues to strengthen, possibly by as much as 15 per cent this year, bankers said.

The yuan rose to a new high yesterday after the People's Bank of China set the mid-price at 7.0512 to the US dollar. It closed at 7.0516, from a previous close of 7.063.

'We have seen our yuan deposits grow by 20 to 30 per cent monthly so far this year,' said Sunny Cheung Yiu-tong, the head of consumer banking at DBS Bank (Hong Kong).

He said the yuan's uptrend and the near-zero returns on Hong Kong dollar deposits were prompting more depositors to keep yuan deposits.

'The rate of increase of Hong Kong's yuan deposits could double this year from last year,' he said.

Yuan deposits rose 47 per cent to 33.4 billion yuan (HK$36.8 billion) last year from 22.72 billion yuan in the previous year.

Standard Chartered Bank yesterday revised upward its forecast on the yuan exchange trend, saying it could appreciate by as much as 15 per cent to the greenback this year, and not just 9 per cent, as it predicted earlier.

Under that scenario, the mainland unit would be trading at 6.35 to the US dollar by end of the year.

Standard Chartered cited continued US dollar weakness and mainland inflationary pressure for the revision. 'We think Chinese policymakers will come to the view that this kind of adjustment is needed,' the bank said in a report.

Law Ka-chung, the chief economist and strategist at Bank of Communications' Hong Kong branch, said the yuan could rise up to 14 per cent this year instead of the bank's previous forecast of 12 per cent.

'The risk for yuan deposits is relatively low [compared with other investments],' Mr Law said.

He agreed that high inflation in Hong Kong - which stood at 6.3 per cent last month - coupled with low Hong Kong dollar deposit rates have made yuan deposits more attractive.

Mr Cheung said the issuance of yuan bonds by more mainland banks in Hong Kong could raise investor interest in yuan deposits.

Bank of Communications, the mainland's fifth-largest lender, said on Wednesday that it would issue its first batch of yuan-denominated bonds, worth as much as five billion yuan, in Hong Kong.

China Export-Import Bank, which issued two billion yuan of bonds last year in the city, plans a second issue of the same amount here.