The first of Hong Kong’s new generation of digital banks has announced its arrival with a 6 percent introductory rate for deposits.
ZA Bank Ltd (眾安銀行), one of eight firms preparing to launch digital-only banks in Hong Kong, has begun a trial run that pays a select group of depositors more than 3 percentage points more than banks such as HSBC Holdings PLC and Standard Chartered PLC.
Although many doubt whether the new banks can maintain such rates, the offer is a warning of upcoming competition for the territory’s US$410 billion local currency time-deposit business.
“This is more of a gimmick, which shouldn’t become a norm, but competition for funds is indeed getting higher as eight more banks are coming out,” said Terry Siu (蕭啟洪), treasurer at CMB Wing Lung Bank Ltd (招商永隆銀行), which pays 3.8 percent to new savers for two-month Hong Kong dollar deposits.
ZA last month began a pilot for the territory’s first digital-only bank. It is offering the 6 percent rate for three-month Hong Kong dollar deposits capped at HK$200,000 (US$25,732), a person with knowledge of the matter said.
The accounts are set at a 2 percent rate, but offer a top up of as much as 4 percent to select clients, the person said.
Standard Chartered, HSBC and BOC Hong Kong Holdings Ltd (中銀香港) pay 1.9 to 2.3 percent for the maturity.
The launch of virtual banks is approaching at a time when tensions stoked by pro-democracy protests in the territory show few signs of abating.
Deposit rates could stay elevated as the unrest persists amid concerns over money outflows.
So far, there have not been any signs that cash is fleeing the territory, although banks have said some clients are inquiring about opening accounts elsewhere as a precaution.
The Hong Kong Monetary Authority (HKMA) — the de facto central bank — steers the economy and maintains stability by pegging the Hong Kong dollar to the US dollar.
A spokeswoman for ZA, a unit of ZhongAn Technologies International Group Ltd (眾安科技國際集團), declined to comment on the rate, but said that it would roll out new offerings in stages.
ZA has said it would provide users with a “full suite of services 24/7,” allowing customers to open an account in five minutes with just a Hong Kong identity card.
An HKMA spokeswoman said in a comment to Bloomberg on Friday that it “notes” that some banks might offer “promotional” rates to some clients, while emphasizing that banking products are commercial decisions.
“While the Monetary Authority will not interfere with the commercial decisions of individual institutions, it would be a concern if a virtual bank planned to aggressively build market share at the expense of recording substantial losses in the initial years of operation without any credible plan for profitability in the medium term,” she said.
Virtual banks are similar to traditional retail banking services in that they would be able to accept deposits and give out loans.
However, they are not expected to set up physical branches, which would keep costs down.
Bloomberg Intelligence anticipates the new banks would find it difficult to make inroads into Hong Kong’s loan market, grabbing just a 1.5 percent share by 2025, as they would be held back by challenges in attracting deposits and high costs for interbank funding.
Bank of East Asia Ltd (東亞銀行) senior foreign-exchange strategist Alan Yip (葉澤恒) was also skeptical about the fat rate being offered by ZA becoming a trend.
“Traditional banks are only taking a wait-and-see approach now, as the virtual banking business has yet to make a splash,” he said. “The market impact shouldn’t be very significant yet, as they will need time to develop, therefore, the higher rate may not become a trend soon.”
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