Hong Kong banks battle for deposits earlier this year
Lenders raise interest rates in recent weeks to attract cash after the HKMA orders players to fund loans with deposits of longer tenure
A regulatory directive that banks in Hong Kong fund the loans they make with deposits of longer tenure has spurred the lenders to begin their annual battle for deposits earlier this year.
They are now offering higher interest rates on Hong Kong dollar deposits - including savings deposits, which tend to stay in place longer than time deposits - to enlarge the funding base for their loan business.
The Hong Kong Monetary Authority brought forward its deadline for banks to review their lending policies from June to the end of this month after growth in bank loans accelerated in the first two months of the year to an annualised rate of 44.5 per cent from 16 per cent for the whole of last year.
Banks in the city traditionally raise interest rates on deposits in the second quarter to tidy up balance sheets by the end of June. But lenders including Bank of China (Hong Kong), Bank of East Asia, China Citic Bank International, Fubon Bank (Hong Kong), Wing Hang Bank and Wing Lung Bank have raised deposit rates in recent weeks to attract cash.
"Liquidity is still quite tight this year, with no sign of relief from the end of last year," said Kung Chi-ming, head of deposits at Wing Lung.
The one-month interbank lending rate has remained at 0.2 to 0.21 per cent from the end of last year, and the three-month rate likewise, at 0.37 to 0.38 per cent, figures from the Hong Kong Association of Banks show.
In view of a potential liquidity squeeze resulting from the tapering of quantitative easing in the United States and tightening monetary policy on the mainland, Kung said the HKMA's push on banks to take in more deposits would support their loan business for the rest of the year.
China Citic Bank International, China Citic Bank's subsidiary in Hong Kong, is paying rates of 0.1 per cent to 1.2 per cent on Hong Kong dollar savings deposits, depending on how long the money is retained in the deposits.
Wing Lung, a subsidiary of China Merchants Bank, has raised the rate on one-month deposits for new funds of HK$500,000 or more to 0.9 per cent per annum from 0.7 per cent. It is offering 1 per cent per annum on two-month deposits, up from 0.9 per cent, and 1.3 per cent per annum on three-month deposits, up from 1.25 per cent.
Family-controlled Wing Hang this week raised the rates on tiered time deposits to encourage depositors to keep money in the bank longer. New funds of HK$300,000 or more in a 120-day tiered deposit can earn an average of 1.43 per cent per annum, up from 1.25 per cent in January. The deposit pays 1.28 per cent per annum for the first 60 days, 1.48 per cent for the next 30 days and 1.68 per cent for the final 30 days.
"Even if a bank does not want to compete [for new] deposits, it still has to follow [in paying high rates] to maintain its [existing] customer deposits," said Paul Wong, chief of treasury at Shanghai Commercial Bank. "[But] it is unhealthy to pay such high rates [compared with the interbank rates]. Only banks with plenty of offshore lending can still earn a reasonable margin."