Hong Kong proposes widening safety net for bank depositors by 60 per cent to US$102,560
- Confidence-building measure unrelated to collapse at Silicon Valley Bank and First Republic Bank, but the part of ‘our regular review’, Hong Kong Deposit Protection Board chairman says
- New cap is in line with international standards and gives sufficient protection to depositors while ‘not adding too high a cost’: CEO
Hong Kong has proposed widening a safety net for the city’s bank depositors in case of a bank failure to HK$800,000 (US$102,560) per depositor, according to proposals made by a government agency on Thursday.
The confidence-building measures, however, are not the “result of the US bank incidents, but our regular review to enhance the system”, Connie Lau Yin-hing, chairman of the board, said in a media briefing.
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“But we have also taken into consideration international developments,” she said.
Following the proposed 60 per cent increase, Hong Kong’s deposit protection ceiling will be similar to that in the United Kingdom, Germany and Ireland. It will be higher than mainland China’s 500,000 yuan (US$72,2400) and Singapore’s S$75,000 (US$55,947) safety nets, but lower than the US$250,000 offered in the United States.
The change will bring Hong Kong in line with international standards, said Daryl Ho, the board’s CEO. The proposed cap will cover 92 per cent of all depositors, in line with an international benchmark of 90 per cent, Ho said. The current cap at HK$500,000 cap covers 89 per cent of bank depositors.
“We believe the new cap is in line with international standards and gives sufficient protection to depositors while not adding too high a cost,” Ho said.
Currently, 150 banks pay a combined annual fee of HK$581 million towards a HK$6.3 billion fund. Assuming that the new ceiling is implemented at the beginning of 2025, the 150 banks will be expected to pay HK$153 million more per year towards a protection fund of HK$8.2 billion.
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The proposal is subject to public consultation over the next three months, and will collect opinions on an agenda that includes how to collect funds from banks to build up the extra cover. Other enhancements included in the proposals look at giving additional protection for six months to depositors in case of a merger between two banks.
Ho said the banking sector supported the proposals.
ZA Bank, the biggest of Hong Kong’s eight virtual banks, welcomed the proposals as an increase in the deposit protection scheme will improve the awareness and trust of virtual banking among bank users.
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“Increasing the protection limit means better safeguarding of Hong Kong bank users’ interests,” ZA Bank said in a statement. “As such, they can be more confident in experiencing the new products and services offered by virtual banks, which should further promote Hong Kong’s fintech development driven by virtual banking.”
The Hong Kong Association of Banks, which represents all 160 banks in the city, said on Thursday that it welcomed the proposals.
“After several US banks’ failure, many depositors have concerns about the safety of their deposits,” said Robert Lee Wai-wang, lawmaker for the financial services sector and CEO of local brokerage Grand Capital Holdings. “It is good to see the government [is seeking to] increase the ceiling of the deposit protection scheme to catch up with inflation and boost the confidence of the public.”
Lee would also like to see an increase in the safety net for the securities industry from the current HK$500,000 per investor in case of a collapse at a broker to HK$800,000. “It will be fair that banks and brokers have the same level of protection in case of a collapse,” he said.
