Savers could switch to foreign banks with higher returns but local banks are fighting back
By Grace Ng 18 October 2008
Now that all Singapore bank deposits are guaranteed, savers are wondering whether to put their cash in high-interest-earning accounts in those banks that some had felt were not as safe as others.
Marketing executive Jay Tai, 38, is eyeing RHB Bank’s 1.78 per cent promotional rate on a $50,000 fixed deposit.
This is almost twice the 0.925 per cent rate offered by DBS Bank, United Overseas Bank and OCBC Bank - the three banks in which he had stowed all his savings a few weeks ago.
‘I moved money out of foreign banks into Singapore ones because I got scared by the television images of a run on banks like Bank of East Asia,’ he said of the occurrence in Hong Kong.
‘Now with the guarantee, I’m keen to move money to the highest-rate deposit. After all, it doesn’t matter how risky the bank may be.’
Singapore’s guarantee on all deposits until the end of 2010 has restored confidence in banks, whether local or foreign, said Mr Leong Sze Hian, president of the Society of Financial Service Professionals.
Depositors are now no longer willing to accept lower interest rates for keeping their money in local banks just because they were perceived as being safer.
‘Previously, certain foreign banks had to pay a risk premium through higher interest rates so depositors would keep money there. But now with the guarantee in place, depositors will just go for banks with the highest rates,’ said Mr Leong.
This may ‘spark a fixed deposit rate war’, as all the banks need to protect their funding base in a global liquidity crunch, he suggested.
In the past few weeks, foreign banks such as RHB, Maybank, Citibank and Standard Chartered (Stanchart) have raised their fixed deposit rates to attract depositors.
They claim the move was influenced by the rising cost of funds known as the interbank rate, rather than to counteract panic withdrawals by fearful investors.
Mr Robin Chua, head of Citibank Singapore’s liabilities product management, said the bank launched promotional rates on Sept 29 ‘in line with the rise in interbank rates’, which rose as a result of the global credit crunch.
The higher rates won 30 per cent more new time deposits over the past two weeks, compared with the average volume in a similar period, he said.
Royal Bank of Scotland (RBS) also said its promotional rates for Royal Preferred Banking clients, launched on Tuesday, have attracted ‘a greater inflow of funds into existing and new deposits’.
‘The blanket guarantee has inspired more confidence from investors in Singapore’s banking system and we believe that will help RBS grow our business and deposit base here,’ it added.
While it is unclear whether the foreign lenders are grabbing market share from the local ones, it is evident that the local players are putting up a fight.
OCBC has seen a higher-than-usual number of fixed deposits opened in the past few weeks, which could be partly due to its promotional rates, said Ms Chng Bee Leng, head of deposits.
Industry players say most banks are seeing a surge in deposits, as jittery investors keep more cash in banks after fleeing turbulent equity markets. Some raise the prospect of investors from countries in the region without deposit guarantees adding to this pool.
If overseas hot-money flows are huge, this may increase the volatility of the Singapore dollar. But the Monetary Authority of Singapore (MAS) is likely to intervene, said one analyst.
A local bank executive thinks a fixed-deposit rate war is unlikely: ‘Banks need to protect their margins in these tough times...And the MAS also told financial institutions not to misuse the guarantee to take on risky activities or raise rates too high to grab deposits.’
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Bank ‘War’ Ahead?
Savers could switch to foreign banks with higher returns but local banks are fighting back
By Grace Ng
18 October 2008
Now that all Singapore bank deposits are guaranteed, savers are wondering whether to put their cash in high-interest-earning accounts in those banks that some had felt were not as safe as others.
Marketing executive Jay Tai, 38, is eyeing RHB Bank’s 1.78 per cent promotional rate on a $50,000 fixed deposit.
This is almost twice the 0.925 per cent rate offered by DBS Bank, United Overseas Bank and OCBC Bank - the three banks in which he had stowed all his savings a few weeks ago.
‘I moved money out of foreign banks into Singapore ones because I got scared by the television images of a run on banks like Bank of East Asia,’ he said of the occurrence in Hong Kong.
‘Now with the guarantee, I’m keen to move money to the highest-rate deposit. After all, it doesn’t matter how risky the bank may be.’
Singapore’s guarantee on all deposits until the end of 2010 has restored confidence in banks, whether local or foreign, said Mr Leong Sze Hian, president of the Society of Financial Service Professionals.
Depositors are now no longer willing to accept lower interest rates for keeping their money in local banks just because they were perceived as being safer.
‘Previously, certain foreign banks had to pay a risk premium through higher interest rates so depositors would keep money there. But now with the guarantee in place, depositors will just go for banks with the highest rates,’ said Mr Leong.
This may ‘spark a fixed deposit rate war’, as all the banks need to protect their funding base in a global liquidity crunch, he suggested.
In the past few weeks, foreign banks such as RHB, Maybank, Citibank and Standard Chartered (Stanchart) have raised their fixed deposit rates to attract depositors.
They claim the move was influenced by the rising cost of funds known as the interbank rate, rather than to counteract panic withdrawals by fearful investors.
Mr Robin Chua, head of Citibank Singapore’s liabilities product management, said the bank launched promotional rates on Sept 29 ‘in line with the rise in interbank rates’, which rose as a result of the global credit crunch.
The higher rates won 30 per cent more new time deposits over the past two weeks, compared with the average volume in a similar period, he said.
Royal Bank of Scotland (RBS) also said its promotional rates for Royal Preferred Banking clients, launched on Tuesday, have attracted ‘a greater inflow of funds into existing and new deposits’.
‘The blanket guarantee has inspired more confidence from investors in Singapore’s banking system and we believe that will help RBS grow our business and deposit base here,’ it added.
While it is unclear whether the foreign lenders are grabbing market share from the local ones, it is evident that the local players are putting up a fight.
OCBC has seen a higher-than-usual number of fixed deposits opened in the past few weeks, which could be partly due to its promotional rates, said Ms Chng Bee Leng, head of deposits.
Industry players say most banks are seeing a surge in deposits, as jittery investors keep more cash in banks after fleeing turbulent equity markets. Some raise the prospect of investors from countries in the region without deposit guarantees adding to this pool.
If overseas hot-money flows are huge, this may increase the volatility of the Singapore dollar. But the Monetary Authority of Singapore (MAS) is likely to intervene, said one analyst.
A local bank executive thinks a fixed-deposit rate war is unlikely: ‘Banks need to protect their margins in these tough times...And the MAS also told financial institutions not to misuse the guarantee to take on risky activities or raise rates too high to grab deposits.’
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