Hong Kong banks raise deposit rates to boost offshore yuan pool

HONG KONG (Reuters) - Banks in Hong Kong are now offering higher interest rates than their mainland cousins on new renminbi (RMB) currency deposits as the recent sharp fall in the Chinese currency dampened investor interest in holding Chinese assets.

These aggressive measures will help bolster the offshore yuan liquidity pool which is under pressure from the weakness of the "redback" and the emergence of more offshore yuan centres.

With HSBC and Bank of China Hong Kong, the two biggest banks involved in the offshore yuan business, leading the way in raising deposit rates, smaller banks are likely to follow suit, enhancing the allure of holding Chinese currency deposits.

HSBC, a leading bank in underwriting offshore yuan bonds, is providing an annual return as high as 3.8 per cent for one-month yuan deposits with a minimum deposit amount of only 20,000 yuan (S$4,016), the bank told Reuters.

In comparison, Hong Kong dollar deposits for the same period yield just a few basis points.

A few blocks away, Bank of China Hong Kong, the clearing bank for all renminbi-related transactions in the city, is offering a return of 3.15 per cent for three-month yuan deposits, according to a spokesperson at the bank.

That compares with an interest rate of 2.6 per cent for a three-month yuan deposit in China, the shortest tenor for a time deposit offered by the central bank, and 3.75 per cent for a two-year yuan deposit.

The competitive rates offered by Hong Kong banks may see a rush by local residents and some companies to convert their foreign currency deposits in Hong Kong into renminbi, further boosting the 920 billion yuan (S$185 billion) pool in Hong Kong.

"Yuan liquidity in the interbank market is not tight at present, so I think banks are aiming to win back clients who switched yuan holdings to other currencies recently," said Ngan Kim Man, head of RMB business strategy and planning at Hang Seng Bank.

The bank is offering an annualised interest rate of 6.38 per cent for yuan deposits with a tenor of seven days.

Lenders such as Dah Sing Bank, Citic Bank International, Standard Chartered and Citi are also offering interest rates not lower than 3 per cent for yuan deposits in Hong Kong.