Lenders are putting up incentives to draw in new business as clients battle to lock in rates that are among the highest in over ten years, intensifying the competition for Hong Kong bank accounts.
In order to attract new business ahead of an anticipated drop in interest rates later this year, several banks are paying as much as 5% annually for term deposits and offering incentives like flight miles and fee exemptions. Because the local currency is pegged to the US dollar, the base rate of the city moves in lockstep with the US Federal Reserve.
As the interest rate cycle is expected to settle down towards the latter half of 2024, it’s a good time to lock in your funds to enjoy the interest rates while they are available,” said Jayant Bhatia, chief product officer at Mox, a digital bank backed by Standard Chartered.
Following four years of falls for Hong Kong’s benchmark Hang Seng stock market, which included a 14% decline in 2023, investors are being drawn in by the high deposit rates. The latest statistics from the Hong Kong Monetary Authority shows that total time deposits in Hong Kong were HK$9.29 trillion (S$1.6 trillion) in November, a 24% increase from the same month last year.
The human resources specialist Cheung, who only wanted her last name to be included, intends to take advantage of the high rates for as long as she can. She holds a one million dollar six-month deposit with HSBC Holdings, which yields 4.5% annually. She stated that there is “no risk” while investing in fixed deposits. If interest rates fall, she may invest the money in equities this year.
“We expect rates may soften,” said Sidney Massunaga, head of retail products, wealth and personal banking for Hong Kong at HSBC. “Customers will be looking to put their money elsewhere, maybe into equity or mutual fund investments.”
Lenders are offering promotions in the interim. If a client of Mox makes a time deposit, they will be eligible to earn miles with Cathay Pacific Airways, a Hong Kong carrier. With regard to these products, the lender became the pioneer bank in Hong Kong to offer upfront interest payments.
“There’s instant gratification on term deposits,” said Bhatia. “Everybody is looking for new funds, all the attractive rates are for new funds.”
Mark, a 54-year-old consumer who has accounts with the majority of Hong Kong’s conventional lenders, is another one leveraging the trend. Every time his term deposit matures, he transfers money between banks, making it appear as “new funds.” He just converted money from Hong Kong dollars into US dollars at a stronger exchange rate, securing a deposit of more than five percent for a period of six months.
There are lenders that are hesitant to compete on pricing. According to Calvin Ng, interim chief executive, ZA Bank, the biggest virtual bank in Hong Kong, is competing not just on price but also on flexibility.
According to its website, the bank is giving a special 3.65% annual rate on four-month Hong Kong dollar deposits. This is not the best rate in town, as other banks like DBS Group Holdings are giving 4.35 percent for new funds of at least HK$50,000. However,
early withdrawal penalties are removed and clients who withdraw their money before maturity receive a cash reimbursement.
The majority of deposits are still held by traditional lenders, despite the competition among virtual banks for market dominance. According to Quinlan & Associates, the eight digital banks had deposits totaling HK$32.2 billion by the first half of 2023, or only 0.2% of Hong Kong’s overall base.
“It’s very competitive,” said Benjamin Quinlan, CEO of his eponymous consulting firm. “People taking money out of markets, putting it in safer instruments. Banks see this as an opportune time to build their deposit base.” BLOOMBERG
- Published By Team Hongkong Journalist