Regulators and banks in Hong Kong are acting to meet increasing demand for the yuan currency and to deal with elevated interbank lending rates before the Lunar New Year holiday starting this week.
Seasonal demand for the yuan has compounded already tight liquidity in the offshore yuan market. This tightness is mainly caused by the repatriation of yuan to the mainland under schemes such as Shanghai-Hong Kong stock connect.
Fears of a potential credit crunch have forced Hong Kong banks to offer attractive deposit rates to retain existing clients and attract new funds.
China Citic Bank International started to offer its existing depositors a return of 4.1 per cent for three-month yuan deposits on Wednesday, after it provided preferential rates for new clients last week.
India's ICICI bank also raised its one-year yuan deposit rate to 4.25 per cent last week, according to local media.
By comparison, the benchmark interest rate for one-year yuan deposits on the mainland is now 2.75 per cent after the central bank cut it in November, the first cut in more than two years.
"After we offered preferential rates to our private bank and new clients last week, inquiries have increased a lot and there are more new accounts being opened," said Rebecca Chan, the head of assets and liabilities at China Citic Bank International.