Hong Kong banks wage war over fixed deposits as interbank lending rates surge

One-year HKD fixed-deposit rate is hiked to as high as 2%.

Hong Kong banks are continuing their battle for HKD fixed deposits as interbank lending rates surge anew with the one-month Hong Kong Interbank Offered Rate (HIBOR) climbing for the ninth consecutive day to 1.457%, according to OCBC Treasury Research.

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Fixed deposits are financial instruments that come with locked-in interest rates often set at higher rates than savings accounts.

Banks are scrambling for such products as three-month HIBOR rose to 1.96% in June whilst one-year HKD fixed-deposit rate has been lifted to as high as 2%.

“We expect one-year HKD fixed-deposit rate to continue moving up moderately towards 2.3% given possible funding squeeze associated with half-year end and mega IPOs. A combination of higher HIBOR and HKD fixed-deposit rate means increasing funding costs for banks,” OCBC Treasury Research added.

With Xiaomi and China Tower gunning for blockbuster listings that could easily raise as much as $10b each, banks are preparing for tighter liquidity conditions, squeezing their profitability. Some lenders like HSBC, BOC Hong Kong and ICBC (Asia) have already halted their fixed-rate mortgage programmes in an effort to counter higher borrowing rates.

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“We could expect a very notable increase in Hibor if an IPO is very oversubscribed,” Ronald Man, a strategist at Bank of America Merrill Lynch in Hong Kong told Bloomberg. “Hong Kong dollar funding conditions could tighten temporarily during an IPO process -- this tightening of funding conditions usually lasts until the IPO process is over.”