HONG KONG: Industrial and Commercial Bank of China (ICBC Asia) has no plans to cut deposit rates in the city as the current rates are already near zero, said Stanley Wong, director and deputy manager of ICBC Asia.

He expects the current savings rates to remain flat for some time in the absence of any room for banks in Hong Kong to cut further their rates from current levels. "I don't foresee other local banks following HSBC's move," Wong said.

Wong's remarks came after HSBC, which has 4.2 million customers in the city of 7 million people, announced Thursday its decision to lower interest for deposits of more than HK$5,000 significantly from 0.01 percent to 0.001 percent. After the cut, a deposit of HK$100,000 will merely yield a measly interest of HK$1 annually, compared to HK$10 previously.

Despite the cut in rates for savers, the prime rate for loans from HSBC remains unchanged at 5 per cent.

Bank of China (Hong Kong) indicated on the same day that it has no plan to cut its interest rates. The city's other major lenders - Hang Seng Bank, Bank of East Asia, Standard Chartered and Bank of China - are so far all keeping their deposit rates at 0.01 per cent.

"The banks now have more than sufficient capital in reserve, which means there is no reason for them to offer a higher interest rate," Wong added.

Analysts said that as capital continues to flow into Hong Kong the balance of Hong Kong's banking system now stands in excess of HK$250 billion, pressing down Hong Kong's interbank offered rate (Hibor) and greatly reducing the cost of interbank lending.

Wealth management

The spread, or net profit, is measured by a bank's liability rate over assets and deposit types. Banks will adjust their interest rate in accordance to the spread.

"By reducing the yield that depositors make in their savings, HSBC expects to encourage them to turn to wealth management services, the demand for which was dampened following the Lehman Brothers mini-bond saga in Hong Kong ," Paul Lee, banking analyst at Taifook Securities said.

"This could affect savers' investment plans as some of them would switch to other investment instruments though investors now prefer long-term and conservative investments."

Given the conservative sentiment in the equity market, Wong said the mortgage lending business, which carries less risks, is proving to be a sound income source for banks.

He warned banks in general not to pursue an expansion of their market share of the mortgage lending market at the expense of collateral risks caused by further cut in mortgage rates.

(HK Edition 05/23/2009 page5)