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SCMP Reporter

Customers should be wary of returns on foreign currency deposit accounts that must be opened, analysts caution

Competition in the deposit market is likely to increase  following HSBC's decision this week to offer a 5.1 per cent interest rate on time deposits.

Industry watchers yesterday said other lenders were likely to follow the bank's lead in enticing  customers with attractive interest rate packages.

HSBC, Hong Kong's largest lender, now offers a bundled deposit package, providing  a bonus interest rate of up to 2.1 per cent to attract customers. The scheme effectively allows clients to get an annual interest rate of up to 5 and 5.1 per cent for deposits of between $150,000 and $1 million respectively over six months.

However, to gain these rates, clients must open  a foreign currency time deposit at the same time.

Sunny Cheung Yiu-tong, head of consumer banking and a director at DBS Bank (HK), said the market anticipated that other lenders would follow suit.

'The competition [in the deposit market] will intensify,' Mr Cheung  said.

However, he warned that while the offer seemed attractive, the fact that foreign currency deposits were required  at the same time meant that customers should look closely at whether the interest rates on foreign currency deposits was attractive compared with the market.

The annual interest rate for six month US dollar deposits of US$20,000 at HSBC yesterday stood at 2.25 per cent while others,  such as Bank of East Asia and Dah Sing Bank, were offering up to 4.875 per cent and 4.69 per cent respectively for US dollar deposit with a similar tenor.

Meanwhile, Dah Sing Bank is offering a  product in which customers can get interest rates of up to 5.15 per cent on Hong Kong dollar deposits of $800,000 or above for six months.

Lau Shun-chuen, an assistant general manager and the head of personal financial services at Hang Seng Bank, said as there was ample liquidity in the market, there was no urgency for lenders to offer higher interest rates.

'However, banks aim to further expand their customer base so  they can cross-sell other  products such as securities,' Mr Lau said.

'They may be bundling investment products such as unit trusts with time deposits, offering incentive deposit rates for a proportion of the deposit.'

Stanley Wong Yuen-fai, a director and deputy general manager at ICBC (Asia), agreed that competition in the deposit market would intensify but it was unlikely that lenders would simply pay the rates  without extracting some benefit.

'They still have to look after their profitability,' he said.

Mr Wong said banks could benefit from bundling investment products where the fees would more than offset the premium paid for the deposit.

Eye on profits

Package offers 5pc or 5.1pc on deposits of $150,000 to $1m

US dollar deposit rates at rival banks exceed HSBC offer

Ample liquidity pushes lenders to widen product cross-sales



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HSBC

Lenders may copy rate move at HSBC