Hong Kong lenders pay more for yuan deposits

Hong Kong banks are nudging up the interest rates they pay on yuan deposits to fill the loss of yuan being sent back to the mainland.

In order to compensate for a cash crunch across the border last month, many Chinese firms moved their offshore yuan deposits back to the mainland, suggesting a decline in such deposits in Hong Kong.

Interest rates for yuan deposits climbed as high as 3.5 per cent in the city, but they might fall to a normalised level of about 2 to 2.5 per cent by the end of this month after the supply of onshore yuan liquidity stabilised, a senior executive at a leading bank said.

Kelvin Lau, a senior economist at Standard Chartered Bank, said he did not expect a continuous outflow of yuan back to the onshore market as market mechanisms such as raising interest rates would adjust the equilibrium.

Three banks launched new promotions for yuan deposits yesterday. Citibank offered an interest rate of 3.5 per cent on one- and three-month yuan deposits, and the minimum amount required is 20,000 yuan (HK$25,045).

DBS Bank offered 3.28 per cent for three-month yuan deposits through online applications, applicable to new funds of a minimum amount of 300,000 yuan.

China Citic Bank International also relaunched its time deposits on yuan yesterday with an interest rate of 3 per cent, applicable to monthly instalments of a minimum amount of HK$3,000 or equivalent for 12 months.