The competition for fixed deposits is heating up, as both local and foreign banks dangle promotional rates that are inching close to the 2 per cent mark.
Bank of East Asia, one of the newer players on the block, began offering 1.98 per cent, starting last Saturday, for a minimum of $50,000 for a 12-month period.
Maybank is offering what is perhaps the best rate of 2 per cent a year for a minimum deposit of $25,000 for 36 months, and 1.8 per cent for the same amount for 12 months. It launched the rate on April 1.
A spokesman said interest was stronger for fixed deposits in the first quarter as customers received their bonuses around that time.
For those who prefer a shorter period, CIMB launched a new offering yesterday, giving an interest rate of 1.6 per cent a year for a sum of at least $20,000 for just six months.
Foreign banks have traditionally competed more fiercely on interest rates for deposits because they lack the presence of multiple branches, unlike local banks.
But recently, OCBC and United Overseas Bank (UOB) have joined the fray.
OCBC launched its promotional rate earlier this month, offering 1.55 per cent for a minimum 12-month $20,000 deposit, while UOB is giving 1.6 per cent a year for a minimum 13-month $20,000 deposit.
This round of promotions comes after banks competed keenly for fixed deposits during the Chinese New Year period.
Some of the banks offered comparatively higher rates then, with CIMB giving 1.8 per cent for at least $20,000 for 12 months, and Maybank offering 1.9 per cent for at least $25,000 for 12 months.
Mr He Yuxuan, an analyst at KGI Fraser Securities, said that the possibility of a further interest rate hike by the US Federal Reserve was prompting banks to lock in deposit rates before higher rates kick in.
"Given that higher interest rates will push up the cost of borrowing for banks, offering attractive foreign deposit rates to strengthen their deposits base is a good alternative to raising funds through sources such as interbank borrowing."
Mr Simon Chen, vice-president and senior analyst at Moody's, emphasised that the key factor behind the keen competition was the minimum liquidity coverage ratio, which has been introduced in phases, beginning last year. It is part of a global regime of banking rules.
The three local banks, as well as four others deemed systemically important such as Maybank and Standard Chartered, have to hit 70 per cent of the ratio this year, he said, with the full requirements to be effective in 2019.
"The local banks have strong domestic deposit franchises and appear to be comfortably meeting the requirement. Foreign banks have to compete harder to improve their deposit base, and are thus more keen on pricing their deposits more attractively."
He said he expected keen competition for the rest of the year, but added that "it would be unlikely for banks to play a price war".
"They are watching the market. Banks will still have to balance profitability and manage liquidity."
This article was first published on May 11, 2016.
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