MIKE CLARKE

ZA Bank has recently launched a "foreign-currency exchange deposit" offering annualised rates of 20% for seven-day renminbi, pound sterling, euro and Australian dollar deposits, comprising a basic rate of 0.10% and a promotional rate of 19.90%. Customers in higher user tiers may receive an additional rate boost, taking the maximum to about 21%. Mainland financial media outlet CLS reported on October 13 that the bank's ordinary Hong Kong dollar seven-day deposit carries an annualised rate of just 0.10%, making the promotional rate about 200 times the standard rate.

ZA Bank is not the only lender offering such high rates. According to CLS, HSBC's similar one-week foreign-currency exchange deposits offer annualised rates of 15% for Australian dollars, 14% for pounds sterling, 13.5% for Canadian dollars and 10.5% for renminbi. Bank of Communications (Hong Kong) is offering a limited-time foreign-currency exchange deposit with an annualised rate of up to 15%. Ping An Digital Bank is offering up to 18% on one-month Hong Kong dollar deposits opened through its referral programme. HSBC's ordinary seven-day Hong Kong dollar deposit also carries an annualised rate of just 0.10%.

To qualify for these high rates, customers must first convert their funds into a designated foreign currency and then open the fixed-term deposit using the converted funds. Industry insiders told CLS that double-digit rates do not represent banks' actual funding costs. Rather, they are short-term marketing tools tied to currency conversion and aimed at attracting new customers and new funds. Such products also commonly come with quota and eligibility requirements.

Seven-day foreign-currency exchange deposits are not new. Comparison website MoneyHero listed HSBC, Hang Seng Bank, Bank of China (Hong Kong) and Nanyang Commercial Bank among lenders offering seven-day Hong Kong dollar deposits at rates of about 8% to 8.9% in 2024, subject to first converting a designated foreign currency into Hong Kong dollars. The difference this time is that the rates are notably higher.

For funds equivalent to HK$100,000, a seven-day deposit at an annualised rate of 20% would generate about HK$384 in interest at maturity, equivalent to about 0.38% of the principal. A one-month deposit at an annualised rate of 7% would generate about HK$583. On this basis, an adverse exchange-rate movement of more than about 0.38% over seven days would wipe out the interest earned. CLS quoted industry insiders as saying that customers would also bear two conversion spreads and exchange-rate fluctuations during the period if they needed to convert the funds back into the original currency at maturity.

Why are banks willing to pay such high rates? CLS quoted foreign-exchange researchers as saying that Hong Kong interest rates passively follow US rates. US interest rates have risen since September, while the Hong Kong dollar temporarily moved close to the weak-side Convertibility Undertaking at 7.85, leaving the banking system's aggregate balance at a low level. Banks experiencing insufficient growth in core deposits are inclined to use short-term high rates to attract customers quickly.

Hong Kong Monetary Authority chief executive Eddie Yue Wai-man wrote on October 6 that the US Federal Reserve's rate hike last month had widened the Hong Kong-US interest-rate gap and weakened the Hong Kong dollar. The currency had recently hovered between 7.8460 and 7.8475, moving closer to the weak-side Convertibility Undertaking at 7.85. Yue said this reflected carry trades triggered by the widening interest-rate gap, as well as a decline in Hong Kong dollar demand related to the stock market. HKMA's half-year report showed that the banking system's aggregate balance stood at about HK$54.2 billion at the end of August 2026.

Industry insiders warned that double-digit rates are concentrated almost entirely in ultra-short products such as seven-day deposits, with rates returning to normal once the promotional period ends. Customers with idle foreign-currency funds who can tolerate exchange-rate fluctuations may use such products as short-term cash-management tools, but the holding period should preferably be kept within three months.

Mainland China: rules governing public funds revised for the first time in 12 years

Separately, mainland regulators have announced developments in another area, unrelated to the deposit promotions described above. The China Securities Regulatory Commission on October 9 began seeking public comment on the "Measures for the Operation and Administration of Publicly Offered Securities Investment Funds (Draft for Comment)", with feedback due by November 8. This is the first systematic revision since the measures were amended and issued in 2014, and a one-year transition period has been proposed. Key changes include:

  • The thresholds for establishing equity funds, mixed-asset funds and fund-of-funds (FOFs) would be lowered from a size of 200 million yuan (about HK$220 million) and 200 million units to 50 million yuan (about HK$55 million) and 50 million units. The threshold for fixed-income funds would remain unchanged.
  • The maximum proportion that non-FOF funds may invest in other funds would rise from 10% to 30%.
  • Publicly offered REITs (real estate investment trusts) would be listed as a separate fund category for the first time. Ordinary public funds investing in REITs would no longer be subject to the limit on a fund's investment in other funds, but would instead be governed by general securities concentration rules.

Institutional estimates suggest that the changes to the REITs regime could bring in additional capital worth hundreds of billions of yuan. CLS noted, however, that broadening the sources of funds does not mean the money will necessarily flow into the market. Public-fund allocations remain at an early stage: interim reports for 2026 showed that all FOFs combined held only about 240 million yuan (about HK$260 million) worth of publicly offered REITs. As of October 11, the Shanghai and Shenzhen stock exchanges had a combined 103 publicly offered REITs listed.

Mainland bank wealth management: public-fund allocations hit a record, led by bond funds

Data from the China Banking Wealth Management Registration and Depository Center showed that mainland bank wealth-management products held total investment assets of 36 trillion yuan (about HK$39.6 trillion) as of the end of June 2026. Their public-fund holdings amounted to 2.52 trillion yuan (about HK$2.8 trillion), accounting for 7.0% of the total and rising 1.9 percentage points from the start of the year, both record highs. Public funds became the fourth-largest asset category in wealth-management products, after bonds, cash and bank deposits, and negotiable certificates of deposit. Brokerage estimates showed, however, that bond funds accounted for the overwhelming majority of the allocations, while mixed-asset, equity and money-market funds were relatively limited. The average annualised return on wealth-management products was 2.05% in the first half of the year, down from 2.12% a year earlier.

A research report by Guosen Securities said the revised operating measures would not directly regulate wealth-management companies, but could affect bank wealth management through two channels. China Securities Journal quoted analysts as saying that, in the short term, wealth-management funds would adopt a more conservative strategy in allocating to public funds, as the stock-market correction had cooled demand for funds with equity exposure.

In the latest data, the outstanding balance of wealth-management products stood at about 33.5 trillion yuan (about HK$36.9 trillion) at the end of September. Securities Daily, citing Puyi Standard data, reported that the balance was up 4.33% year on year, compared with growth of 9.42% in the same period last year. CLS, citing Puyi Standard, reported that the seven-day annualised yield on cash-management products was 1.07% at the end of September, while the average one-month annualised yield on open-ended fixed-income products, excluding cash-management products, was 1.66%, down 0.27 percentage point from the previous month.

What to watch

  • Whether the Hong Kong dollar will reach the weak-side Convertibility Undertaking at 7.85, and how the aggregate balance changes.
  • Whether promotions for similar seven-day foreign-currency exchange deposits will continue, and when their rates will fall back.
  • The final version and timetable for the operating measures after the feedback period ends on November 8.
  • The proportion of wealth-management assets allocated to public funds in the next set of data from the China Banking Wealth Management Registration and Depository Center.
  • Whether actual allocations to publicly offered REITs can expand from the low base of about 240 million yuan.