Deregulation fallout offers chance for minor players to lure big guns' disenchanted customers

The SAR's smaller banks are not expected to increase charges on deposit accounts once interest rate regulation is scrapped in July. This follows Standard Chartered's move to impose an increased fee on small depositors.

Analysts have predicted smaller banks will eschew levying charges to lure small account holders from the larger players.

However, service fees of the smaller banks may be increased as their customer base rises.

The Bank of East Asia (BEA), which levies no deposit charges, said market conditions would dictate whether any fees were introduced.

'We will be looking at the market conditions before we implement such charges,' said BEA marketing manager Betty Ho.

Mike Murad, chief executive of International Bank of Asia (IBA), argued it was necessary for banks to consider customers and shareholders regarding this issue.


'We must balance the requirements of providing value to customers with requirements of providing value to our shareholders,' said Mr Murad.

While Mr Murad stressed it was too early to make any decision regarding charges, he said: 'We regularly review our fees in order to ensure they are fair and competitive'.

IBA charges depositors HK$10 per month for savings accounts with a balance of below HK$1,000 which have been dormant for longer than six months.

After deregulation, banks are expected to increase charges on less profitable clients, or those with smaller deposits.


A leading industry analyst said this might force small-account holders to leave larger banks in favour of smaller banks.

'I don't think smaller banks will raise their monthly fee for deposits,' said Core Pacific-Yamaichi senior research analyst Bonnie Lai.


'The smaller banks will not impose charges for very small amounts as they want to recruit more customers.'

Shanghai Commercial Bank said it was unlikely to increase charges in July. A bank spokesman said: 'I don't think we will follow suit.'

However, if the smaller players are successful in capturing customers from the larger banks, they will need to be wary of the consequences. Lower net-worth customers tend to use branch services more and are more costly.


Service fees, therefore, are expected to rise with smaller banks offering more products at higher rates to ensure profitability.

Larger banks such as HSBC are expected to increase charges but have not committed to concrete plans. An HSBC spokeman said the bank would be reviewing the situation in July when deregulation occurred.

'But people should be aware of this and start consolidating,' he said.


This type of account consolidation is sure to be encouraged by banks after July and tiered deposit charges will be introduced to hasten such a move.

'You will see charges coming in and it's likely users will have to pay for certain services that were previously free,' the HSBC spokesman said.

'There has been no limit on bank use before, while in other countries customers can only enjoy a certain number of free ATM services,' said Ms Lai.

'Banks in Hong Kong are moving more in line with international standards.'

Ms Lai also believes Standard Chartered's move indicates they are trying to carve out a niche in the high-income market.

Banks are also expected to shift their channels of service delivery to the Internet or telephone from the more costly branch structure.

'It is a trend among the younger generation to use Internet and phone banking,' said Ms Lai. 'In the future banks may also impose fee charges for Internet services.'

Mr Murad expressed hope customers would use less conventional channels to conduct banking.

'We encourage customers to make use of the most cost-efficient channels such as phone banking, ATMs and Internet banking,' said Mr Murad.

'Greater usage of these channels will benefit both customers and the bank by reducing the need to raise charges.'

However, this could result in a contradiction with low-income individuals encouraged to conduct banking online when they might not be able to afford Internet access.

The October 1 edition of Sunday Money first revealed banking would become more expensive for consumers in an interview with Hong Kong Monetary Authority (HKMA) executive director Simon Topping.

Mr Topping confirmed that people with smaller balances would suffer most from the liberalisation of interest rates.

Graphic: bank14gwz