Singapore banks draw rising deposits from protest-hit Hong Kong

Via Financial Times

Singapore’s banks have attracted record fund inflows over the past 12 months from foreign deposit holders including those in rival Asian financial hub Hong Kong, the city state said on Friday.

The inflows follow global economic uncertainty from the coronavirus crisis and political turmoil in Hong Kong, which has been hit by protests and the imposition of a national security law by Beijing.

Since mid-2019 there has been a broad-based increase in deposits “by non-residents from multiple jurisdictions, including Hong Kong”, said the Monetary Authority of Singapore, the city state’s de facto central bank.

It did not provide a breakdown showing how much of the funds had come from Hong Kong. But the statement was one of the strongest admissions yet from Singapore that it is attracting money from the territory, which is grappling with its biggest political crisis since its handover from the UK to China in 1997.

Since Hong Kong’s pro-democracy protests started a year ago, Singapore has been careful not to give the impression of taking advantage of its rival’s troubles in what many see as an attempt to avoid upsetting Beijing.

In April, foreign currency deposits at Singapore’s banks jumped almost fourfold to S$27bn year-on-year, while deposits from non-residents rose 44 per cent in the same period to S$62bn, according to the MAS. Both volumes are the highest on record since 1991. 

“These flows have become more volatile in recent months due to the Covid-19 pandemic and resulting market fluctuations,” the MAS said.

An executive at a Singaporean bank with operations in Hong Kong said the volume of its consumer and private banking foreign currency deposits grew “higher than normal” by about 20 per cent since April 2019, with funds flowing in from across the globe, including Hong Kong. 

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Eugene Tarzimanov, senior credit officer at Moody’s, said Singapore’s jump in foreign deposits was to be expected “in times of stress, driven by the country’s safe-haven status”.

Companies drawing down foreign exchange loans to cope with coronavirus also contributed to the rise in Singapore’s foreign exchange deposits, said Mr Tarzimanov. “Corporates have tapped their lines with banks as a safety precaution and part of these borrowings ended up with banks as deposits.”

China’s parliament last week formally approved a plan to impose national security laws on Hong Kong, raising concerns about the city’s future as a global financial centre.

In another sign of the Communist party’s growing assertiveness over the city, pro-Beijing lawmakers in Hong Kong on Thursday passed a bill that makes mocking China’s national anthem a crime.

A move by Washington to strip the territory of its special trading privileges in retaliation for China’s security law has also raised fears that Hong Kong’s currency peg with the dollar could be abandoned.

Yet Hong Kong officials have denied the territory is suffering from capital flight. Eddie Yue, chief executive of the Hong Kong Monetary Authority, the territory’s de facto central bank, said on Tuesday that “there have not been significant fund outflows from either the Hong Kong dollar or the banking system”. 

Hong Kong dollar deposits in Hong Kong in April grew 1.1 per cent year on year to HK$13.89tn, according to Reuters data. 

Mr Yue added that, despite reports of a shortage in US dollar notes in the city, there was “no shortage of US dollar banknotes in our banking system, and the demand will be fully met when banks step up their banknote distribution logistics”.

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Banks including UBS, HSBC, Pictet and Credit Suisse in October reported a sharp increase in Hong Kong customers opening overseas accounts in the city state and other financial centres.