Banks raise offshore yuan deposit rates ahead of through train scheme

Hong Kong has been witnessing an industry-wide increase in offshore yuan deposit rates since mid-September as banks scramble for the currency before the through train scheme launch.

The window-dressing needs for year-end balance sheets, an anticipated rise in cross-border funding demand from mainland borrowers and the weakening of offshore yuan that has caused fewer firms to bring yuan to Hong Kong to settle trades, have all caused local banks to woo offshore yuan capital aggressively.

At least eight banks have raised their yuan deposit rates or extended their promotional offers. HSBC and China Construction Bank were the two banks that raised their short-term yuan deposit rates last week, following similar moves by Dah Sing Bank, DBS, Nanyang Commercial Bank and Standard Chartered in early October.

"The rate hikes, mostly very short-term, suggest the banks are expecting the through train scheme will kick off shortly," said Banny Lam, managing director and co-head of research at ABCI Securities.

"They are competing with each other regardless of short-term costs in order to attract more new clients or encourage existing clients to open yuan accounts to buy renminbi-related products."

Some banks are even setting deposit rates higher than the lending rate in order to beef up the liquidity pool.