Hong Kong banks hike deposit rates as cash conditions tighten

Dah Sing Financial Holdings

17/05/2023 06:55

By Georgina Lee
       HONG KONG, May 17 (Reuters) - Banks in Hong Kong are
rushing to raise deposit rates and attract retail money as a
spurt in loan demand and investment outflows led to an abrupt
tightening of cash conditions.
    The scramble to lure retail money marks a change for the
city's banks, most of which have kept deposit rates on hold this
year even as the U.S. Federal Reserve pushed rates up
aggressively. 
    Nearly a dozen Hong Kong banks, as Dah Sing Bank  0440.HK ,
China Citic Bank International and China Construction Bank
(Asia)  0939.HK , have raised deposit rates over the past two
weeks. Some of them are offering 3.9-4% per year on three-month
deposits, a level last seen in late 2022. 
    Analysts said the trigger was the sharp fall in banking
system liquidity. The aggregate balance at the Hong Kong
Monetary Authority (HKMA) has fallen to its lowest since 2008,
as the central bank intervened to defend its currency peg
 HKD=D3 .    
    "As the aggregate balance has fallen to HK$45 billion, banks
now expect that interbank rates will only go up as the demand
for the Hong Kong dollar is rising as the economy improves,"
said Samuel Tse, an economist at DBS Bank.   
    Hong Kong's main policy rates are tethered to those in the
United States by the currency's peg to the dollar, but the
city's interbank rates were pinned to lows by weak loan demand
and investment inflows into Chinese stocks and bonds. 
    The spread between Hong Kong and U.S. rates hit its widest
in two decades in April, as banks cut their deposit rates and
investors borrowed the cheap Hong Kong dollar for carry trades. 
    But banks are now seeing interbank rates rise as loan demand
picks up and international appetite for Chinese assets cools.
The one-month Hong Kong Interbank offer rate (Hibor)  HIHKD1MD= 
climbed 165 basis points in just a month to around 4.45%.
    The city's economy grew 2.7% in the first quarter aided by a
recovery in inbound tourism and domestic demand. It was the
first quarter of growth after four consecutive ones of
contraction. The number of mortgage loan approvals in Hong Kong
also rebounded strongly in the months of February and March.
    To be sure, banks can borrow against the HK$1.2 trillion 
($152.89 billion) they hold of exchange fund bills, which are
debt securities issued by the HKMA, to get quick cash from the
monetary authority's discount window.
    But raising money from retail depositors is the cheaper
option. The HKMA discount rate for repurchase transactions
follows the city's base rate, and is around 5.5%. 
    ($1 = 7.8489 Hong Kong dollars)

 (Reporting by Georgina Lee; Editing by Jacqueline Wong)
 ((Georgina.Lee@thomsonreuters.com;))