Hong Kong lenders may have to offer higher interest rates to compete for more retail deposits in order to meet the new banking norms that will be implemented from 2013.
The Hong Kong Monetary Authority will seek an amendment in the law to introduce the tighter capital and liquidity requirements stipulated under the so-called Basel III banking regulation.
If approved by the legislators, Hong Kong would introduce the new regulation in 2013 but banks would have a long grace period and would be required to fully comply by 2019, according to a paper circulated by the HKMA in the Legislative Council yesterday.
Basel III, seen as the most important international banking regulation in recent times, requires banks around the world to have a higher capital and sufficient liquid assets. It was framed by the Basel Committee, a standard-setting body of central bank governors from 27 countries, which also set the Basel I rule in 1988, followed by Basel II in the 1990s.
While Basel I and II mainly stipulated banks to have sufficient capital to back their loans and protect against market risks, Basel III, for the first time, introduces a liquidity requirement as well. At present, banks in different jurisdictions have different liquidity requirements and no single international standard.
The new regulatory focus for a standard liquidity criterion came after the global financial crisis, when interbank lending virtually froze up.
At present, banks in Hong Kong have to maintain a ratio of 25 per cent of liquid assets on top of deposits.
