Banks Seeking Hong Kong Deposits Push Rates as High as 3%

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(Bloomberg) -- Competition in Hong Kong’s $292 billion time-deposit business is intensifying as a surge in short-term borrowing costs forces banks to seek other avenues of funding.

With interbank rates climbing ahead of expected Federal Reserve hikes and a slew of potential initial public offerings, lenders from Standard Chartered Plc to Industrial & Commercial Bank of China (Asia) Ltd. have been raising time-deposit rates to more than 2 percent in some cases. China Citic Bank International Ltd. now pays as much as 3 percent to new savers who transfer their funds into three-month Hong Kong dollar deposits.

“This trend will continue as rates are only going up,” Lawrence Kung, head of the deposits department at Wing Lung Bank Ltd. in Hong Kong, said in a phone interview. “Banks are preparing themselves in terms of funding before the rate-hike cycle.”

Interbank liquidity is set to tighten more as the Fed signals plans to raise rates further and China’s major technology firms are allowed to go public in Hong Kong under a new listing regime, sucking money out of the system. HSBC Holdings Plc on Monday became the latest lender to promise higher deposit rates, a bid to lock up funding in anticipation of continued loan growth.

The aggregate balance of the city’s banking system may drop to only a few billion Hong Kong dollars in the coming months as the Hong Kong Monetary Authority continues to mop up liquidity to defend the currency’s dollar peg, said Ryan Lam, head of research at Shanghai Commercial Bank.

The three-month interbank rate rose for a 13th straight day on Wednesday to the highest since December 2008. That was the longest streak since January 2017. Ping An Good Doctor drew $47 billion of orders for the retail portion of its IPO according to a local report, more than 40 times the amount of money it raised. And the spate of tech listings is just getting started, with Xiaomi Corp., Ant Financial and Lufax Holding preparing to raise tens of billions of dollars.

Read more on how Xiaomi’s $10 billion IPO may fuel a cash crunch

Banks held HK$2.3 trillion ($292 billion) in time deposits as of February, the most in at least two decades, HKMA data show. Because rising demand for loans allows them to pass higher costs on to borrowers, executives don’t expect increasing deposit rates to crimp profits.

“Amid an overall increase of interbank rates, banks are seeking to draw in more deposits and meet loan demand,” Mathew Mak, head of deposits for retail banking at Standard Chartered Hong Kong, said by phone. “That’s why offering higher deposit rates to customers doesn’t necessarily hurt our earnings.”

For more analysis on effect of rising Hong Kong deposit costs

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