No extra interest for retail yuan deposits

Bank customers with yuan deposits in Hong Kong will not be getting higher interest on those deposits although Bank of China (Hong Kong) has raised the interest rate it offers on yuan that those banks hold with it.

Bankers said the interbank rate, which banks charge each other for short-term loans, was a more important determinant of the interest paid on yuan deposits than the rate BOCHK, the yuan clearing bank, offered.

There is no shortage of offshore yuan, as yuan deposits in Hong Kong rose for the fourth consecutive month in January.

BOCHK has raised the rate it offers banks with yuan business in the city to 0.648 per cent per year from 0.629 per cent. It now also offers the banks fixed deposits of one to three months. The interest rate on these deposits will be published daily. The one-month rate is 2.2 per cent a year, 2.3 per cent a year for two-month deposits and 2.4 per cent a year for three-month deposits, Bloomberg reported.

A BOCHK spokesman said yesterday the bank raised the interest rate to improve its service as a clearing bank and to broaden the options for banks dealing in yuan to allocate their holdings in the currency, so as to promote the development of Hong Kong as an offshore yuan centre.

Teddy Wong Wai-hin, the head of deposits for northeast Asia at Standard Chartered Bank Hong Kong, said banks were unlikely to pass the rate rise to retail customers, because the rate on retail deposits was based on the demand and supply of yuan in the city. The high availability of offshore yuan in the market would offset the effect of BOCHK's increase, he said.