Caixin
FINANCE

In 12-Year First, Hong Kong Lender Hikes Key Savings Rate

A branch of OCBC (Oversea-Chinese Banking Corp. Ltd.) Bank in Hong Kong on Nov. 6. Photo: IC
A branch of OCBC (Oversea-Chinese Banking Corp. Ltd.) Bank in Hong Kong on Nov. 6. Photo: IC

OCBC Wing Hang Bank Ltd. (WHB) has become the first Hong Kong bank in 12 years to raise a key savings account interest rate, with its peers expected to follow suit as they try to keep hold of customers in the face of an anticipated interest rate hike in the U.S. this month.

WHB, a wholly owned subsidiary of Singapore-based Oversea-Chinese Banking Corp. Ltd., unexpectedly raised its interest rate for current account saving accounts (CASAs), which allow depositors to withdraw money at any time, from 0.01% to 0.25% on Wednesday.

The increase, the first of its kind in Hong Kong since 2006, will see the bank’s customers enjoy the highest savings deposit rate in the city and is “in line with our strategy to grow savings deposit base,” WHB said in a statement issued earlier this week.

Analysts said the raise was a response to shrinking liquidity in the territory’s financial market amid climbing interest rates in the U.S. The Hong Kong interbank offered rate (Hibor) has risen quickly since April, leading to a tightening of funds flows across the territory’s banking sector. This has been exacerbated by the Fed’s hike in interest rates in June, which caused money to return to the U.S., they said.

The Federal Reserve is likely to raise interest rates again in September, which will force Hong Kong’s banks to increase their rates in a bid to retain capital, said Kenny Wen, senior vice president and wealth management strategist at asset management company Everbright Sun Hung Kai. Wen added that he expects other small and midsize banks to follow WHB’s lead and raise the savings rate.

Several Hong Kong’s banks have raised the interest rate paid on time deposits, or savings that must be held at a bank for a fixed term, but have higher interest rates than demand deposits such as a CASA.

1

The competition for deposits has added pressure on smaller lenders such as WHB, and the bank’s CASA rate hike appears intended to contain jumps in its overall funding costs by encouraging customers to use the lower interest bearing, but more flexible, accounts.

“Funding costs are generally rising as more customers switch from CASA to time deposits in view of higher rates amid competition, a tightening liquidity pool and weakening capital markets,” analysts with Deutsche Bank said in a report on Wednesday. “Funding pressure could be higher for smaller banks like WHB — a rise in savings rate could reduce or slow down the rotation into time deposit funding.”

The city’s banks offer interest rates ranging from around 1.5% to 2.5% on time deposits.

Interest rates in Hong Kong have been close to zero since the aftermath of the 2008 global financial crisis, with the low borrowing costs attracting more than $130 billion of funds to flow into the territory by June 2017, according to statistics from the Hong Kong Monetary Authority.

The cycle of U.S. Fed interest rate hikes may have brought those times to an end, however. A large number of investors have been selling enormous amounts of Hong Kong dollars to buy U.S. dollars to take advantage of higher American rates, said Howard Lee, a deputy chief executive of the Hong Kong Monetary Authority.

Contact reporter Ke Dawei (daweike@caixin.com)

ladingImg
You've accessed an article available only to subscribers
Try 4 weeks for $0.99
SUBSCRIBE
Share this article
Open WeChat and scan the QR code
Copyright © 2017 Caixin Global Limited. All Rights Reserved.