HONG KONG: The strong capital flow to Hong Kong has prompted local banks to cut deposit rates, with BOC Hong Kong leading the pack by slashing its one-year yuan deposit rate to 2.9 percent from 3.5 percent.
This is the first time any local bank has offered less than 3 percent on yuan deposits since the launch of the Shanghai-Hong Kong Stock Connect last November.
The move of Hong Kong’s second-largest commercial bank by assets has sparked many other lenders to follow suit.
Standard Chartered cut the one-year time deposit rate on yuan deposits from 3.4 percent to 3.2 percent, and DBS Hong Kong lowered its three- and six-month rate to 3.7 percent, down 0.2 percentage points.
OCBC Wing Hang Bank now offers 3.8 percent for a 120-day yuan time deposit, compared with 4.18 percent earlier.
“Both the mainland and Hong Kong will face a low-interest yuan environment, following China’s launch of a deposit insurance scheme in May and the marketalization of the yuan interest rate,” Wing Lung Bank assistant general manager Henry Huang Rui said.
Interest on local yuan deposits is expected to stay soft for the next two to three years, he said.
Wing Lung, in which state-owned China Merchants Bank (3968) has a more than 50 percent stake, saw growth of its lending business ease this year.
Huang expects overall outstanding loans this year to grow by 10 percent, down from 16 percent in 2014. However, “[10 percent growth] should be higher than the midpoint of the sector’s performance,” he said.
“The speed at which local banks are offering loans has slowed down since the first quarter. Our outstanding loans in the first quarter rose by roughly 3 percent to 5 percent from the previous quarter.”
Huang said the establishment of three new free trade zones in the mainland will bring opportunities to local banks.
