Hong Kong banks battle for deposits earlier this year

A regulatory directive that banks in Hong Kong fund the loans they make with deposits of longer tenure has spurred the lenders to begin their annual battle for deposits earlier this year.

They are now offering higher interest rates on Hong Kong dollar deposits - including savings deposits, which tend to stay in place longer than time deposits - to enlarge the funding base for their loan business.

The Hong Kong Monetary Authority brought forward its deadline for banks to review their lending policies from June to the end of this month after growth in bank loans accelerated in the first two months of the year to an annualised rate of 44.5 per cent from 16 per cent for the whole of last year.

Banks in the city traditionally raise interest rates on deposits in the second quarter to tidy up balance sheets by the end of June. But lenders including Bank of China (Hong Kong), Bank of East Asia, China Citic Bank International, Fubon Bank (Hong Kong), Wing Hang Bank and Wing Lung Bank have raised deposit rates in recent weeks to attract cash.

"Liquidity is still quite tight this year, with no sign of relief from the end of last year," said Kung Chi-ming, head of deposits at Wing Lung.

The one-month interbank lending rate has remained at 0.2 to 0.21 per cent from the end of last year, and the three-month rate likewise, at 0.37 to 0.38 per cent, figures from the Hong Kong Association of Banks show.