Smaller banks are getting ready to launch tailor-made products to attract small-account holders seeking to avoid hefty new fees introduced by HSBC and Standard Chartered Bank. In the past couple of months the smaller banks have stepped up their marketing campaigns to lure small depositors. On Tuesday, HSBC announced it would levy HK$40 a month on passbook account holders whose balances fall below HK$5,000, while PowerVantage account holders would have to pay HK$60 a month if their balances fall below HK$10,000. Last month, Standard Chartered announced it would charge for account balances falling below HK$10,000. Ted Ling, managing director of personal banking at DBS Kwong On Bank, said it was set to launch new products for small depositors. 'We have already done our research and have tailor-made products according to customers' preferences,' Mr Ling said. He said DBS Kwong On would announce the new banking products before July, when interest rates would be deregulated. Bank of East Asia (BEA) said it was adopting a wait-and-see attitude. 'We feel that it's in our best interest that we do not impose charges,' Tong Hon-shing, the bank's head of retail banking said. 'Come July, we will see the trend. Hence, we won't make any changes now.' But already other banks are jumping into the market to seek a bigger share. Doreen Chan Hui Dor-lam, executive vice-president of Citic Ka Wah Bank, which has been aggressively repositioning itself in the highly competitive retail banking market, said: 'There will be more variety of service packages, structures and pricing from us.' Banks such as Citic Ka Wah, Dah Sing, Shanghai Commercial and Chekiang First Bank have also announced that they will not follow the two banks in introducing new charges. 'Instead of levying charges, we will give incentives to them [depositors],' Ms Chan said. A DBS Securities analyst said competition for small-balance depositors would heat up through pricing and non-price incentives, and banks were expected to pump more money into heavy marketing and promotion campaigns. Roy Ramos, a Goldman Sachs analyst, said providing wealth-management solutions was a new mantra for banks as they sought to persuade customers to buy products which would bring higher margins than savings accounts. Bankers admitted that deregulation would bring about tough competition among banks and smaller depositors would have to pay charges as a result of the user-pays concept. But they said financial institutions would introduce attractive pricing tiers to lure small depositors. This means that smaller banks would not charge low-balance depositors. 'There is tier pricing in other bank services but it has not really been seen in savings accounts yet,' Ms Chan said. 'But after deregulation, we will introduce such pricing, product choices and incentives.' The new trend of tiered pricing will help smaller depositors consolidate their accounts into one bank. 'Customers at the end of the day would consolidate their accounts and move from one bank to another,' Mr Ling said. Ms Chan said consolidation of accounts by customers would give them better bargaining power and pricing. She added that customers moved their accounts not only because of charges but also because of 'emotional value'. 'People go to those banks that give them some importance and there is an emotional value to it, and they move when they get upset because of various factors,' she said. 'It is important not to judge how much they have in a single account. Many Hong Kong people still put their money in a number of banks. Their accounts might appear to have low balances but they could be high-value customers.' Bankers also suggested that tiered pricing would become popular after deregulation. 'In fact, some banks already have two-tiered pricing. But the trend is towards multiple tiers,' Mr Tong said. Joseph Pang Yuk-wing, executive director and deputy chief executive of Bank of East Asia, believes that the majority of account holders in the lower tier would not migrate. 'HSBC is still the largest bank in terms of network and services, so not many can rival and match them,' Mr Pang said. Bankers also suggested consolidation would take place among smaller banks as a result of deregulation. 'The market is already competitive and for small banks to survive it's hard as they do not have the scale,' Mr Tong said. 'Deregulation has made the situation more severe for banks and small banks will have to consolidate.' Mr Ling said he thought consolidation would begin next year. Ms Chan said: 'We have already seen some consolidation last year. After interest-rate deregulation, we will perhaps see more.' A senior executive at a major bank said he did not expect banks to raise interest rates to attract deposits after deregulation. 'Loan demands have not been great, hence banks are not anxious for lending. Interest rates for smaller balances would naturally decline,' he said. Mr Tong of BEA said fee structure was an important factor in determining customers' preferences for banks. Many banks are riding on the opportunity to expand their customer base and gain profits from cross-selling. 'Revenue from charges is not substantial to us but we hope to do more cross-selling. We would rather encourage our customers to go cyber rather than use pricing to discourage them,' Mr Tong said.
