Hong Kong banks vie for edge in yuan deposits with high rates

Against falls in the currency, lenders in HK are offering rates as high as 3.8 per cent for one month per year amid signs demand is holding up

PUBLISHED : Wednesday, 09 April, 2014, 11:14am
UPDATED : Thursday, 10 April, 2014, 1:26am

Hong Kong banks are stepping up efforts in the battle for yuan deposits with high interest rate promotions in the currency, which has fallen the most among Asian units this year.

The banks include HSBC, DBS, Wing Hang Bank and China Citic Bank International. HSBC is offering one-month deposits at 3.8 per cent per year, the highest among the lenders. It said the rate applied to those exchanging the Hong Kong dollar into yuan at the bank, but was limited to the daily conversion quota in Hong Kong of 20,000 yuan (HK$25,138) a day.

"More people in Hong Kong exchanged the yuan in recent weeks after seeing the currency had stabilised [from the first quarter]," said Yang Jiewen, head of the yuan business division at Bank of China (Hong Kong), the sole yuan clearing bank in the city.

Hong Kong's yuan deposits amounted to 920.3 billion yuan at the end of February, up 6.9 per cent from the end of last year, Hong Kong Monetary Authority data showed.

ICBC (Asia), the Hong Kong subsidiary of Industrial and Commercial Bank of China, said the bank would likely match any moves by its peers by raising interest rates on yuan deposits and that it planned to maintain the stability of its yuan deposit portfolio by offering attractive rates, deputy chief executive Peter Leung said.

Wing Hang Bank, the eighth-largest lender in Hong Kong, offers an annualised rate of 3.2 per cent for three-month yuan deposits for new funds to the bank ranging from 300,000 yuan to one million yuan.

Vivian Chan, an executive director of DBS at Hong Kong, said some banks wanted to hold more yuan deposits in anticipation of a relaxation in the yuan conversion daily limit in the city. Banks are expected to launch more yuan-denominated products once the limit eases.

The depreciation of the yuan, at 2.33 per cent this year, had attracted more retail customers to exchange the currency at a cheaper price, bankers said. Some Chinese banks viewed the increased conversion as an opportunity to gain market share in yuan deposits and then pump the yuan to the parent company on the mainland for interest income.

The People's Bank of China said on March 15 it would let the onshore yuan spot rate float 2 per cent on either side of its daily reference fix, double the previous 1 per cent trading band. The move slowed the pace of depreciation.

Yang said retail investors remained optimistic about the yuan, though some pressure for adjustments would be seen in the near term.

HSBC's forecast is for the yuan to appreciate 1.2 per cent to 5.98 to the US dollar by the end of 2014. Standard Chartered expects it will reach 5.92.