Lenders boost deposit rates to attract funds
Tight liquidity on the mainland and in Hong Kong has led to banks raising interest rates for deposits to attract funds.
Citibank raised its rates by 0.2 percentage point yesterday. Citigold and Citibanking will pay 1.7 per cent and 1.5 per cent per annum, respectively, for new deposits of at least HK$10,000 for two months.
Wing Lung Bank raised its rate to 1.23 per cent from 0.75 per cent for two-month fixed deposits of HK$500,000 and above. A spokeswoman at the lender said the offer would end on Friday.
Ngan Kim-man, the head of yuan business strategy and planning development at Hang Seng Bank, said the cash crunch on the mainland had also affected Hong Kong.
Demand for trade finance fell because of increased borrowing costs, Ngan said.
The interest rates for offshore yuan deposits of most banks remained steady after the clearing bank, Bank of China (Hong Kong), said it would raise interbank deposits rates next month. Most banks had already increased their rates to as high as 5 per cent for short-term deposits.
Deutsche Bank economist Ma Jun said since the offshore yuan amount was small and the mainland's capital control tight, the increase in yuan interest rates in Hong Kong would not help solve the liquidity squeeze on the mainland.
All local banking stocks fell after Moody's downgraded the outlook for the city's banking system to negative from stable, followed by a downgrade in the financial strength ratings of nine banks.
Dah Sing Banking was the weakest performer with a 3.46 per cent loss.
Mainland banks have been targeted for short selling by foreign hedge funds in Hong Kong this month. On Monday, Minsheng Bank was the most shorted stock after the Tracker Fund.
Ma said most medium-sized banks were still net lenders on the mainland and did not rely much on interbank funding.
"The market may have over-reacted a bit," he said.