Greater protection for bank deposits worth every penny for Hong Kong
- As Hong Kong continues to emerge from its post-Covid slump, proposed confidence-building measures in line with safety nets at a global level can only help
Confidence-building measures offering wider protection for depositors in the event of a bank failure have been proposed for Hong Kong.
Increasing coverage to HK$800,000 (US$102,000) per depositor seems to be a sensible move for a city focused on post-pandemic economic recovery.
Funded by the banks themselves, the scheme was launched in 2006 when it provided up to HK$100,000 in deposit protection. The level was raised to half a million dollars in 2011.
The Hong Kong Deposit Protection Board proposes a 60 per cent increase that would put the deposit-protection ceiling on the same level as that for depositors in Britain, Germany and Ireland.
It would surpass the mainland’s 500,000 yuan (HK$547,000) safety net and the S$75,000 (HK$443,000) provided in Singapore, but not be as high as the US$250,000 coverage in the United States.
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A dozen years have passed since the board last adjusted the protection level. Much has changed for the industry in the interim, including the collapse of US lenders such as Silicon Valley Bank and First Republic Bank.
While those alarming failures put a spotlight on the deposit-protection issue, board chief Connie Lau Yin-hing insisted that the body’s proposal was not the “result of the US bank incidents, but our regular review to enhance the system”.
Board CEO Daryl Ho said the city would be brought in line with global standards under the cap that would cover 92 per cent of all depositors. The current HK$500,000 limit covers 89 per cent of bank depositors, just below the international benchmark of 90 per cent.
Ho said adequate protection for depositors was achievable “while not adding too high a cost”. Currently, 150 banks pay a combined annual fee of HK$581 million towards a HK$6.3 billion fund.
If the new ceiling is in place as planned by the start of 2025, the banks will be expected to pay HK$153 million more per year towards a protection fund of HK$8.2 billion. The proposal will be subject to public consultation for three months.
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The board wants to gather opinions about how to collect funds from banks to build up the extra coverage and possible additional protection for a half year when two banks merge.
It was good to see strong support for the plans from the banking sector. Among those welcoming the proposal are virtual banks.
The city’s largest, ZA Bank, said better safeguards meant customers could be “more confident” about trying new products and services, which could in turn boost fintech development.
Hong Kong still has plenty of heavy lifting to do to get out of its post-Covid slump. The support offered by deposit protections in line with global levels can only help as the city’s economy presses ahead.
