TNAG-1483-FCO40-2037-Economic-situation-in-Hong-Kong-1986 — Page 44

deposits (4), Hong Kong dollar deposits grew by 3.6% during

third quarter, and by 13.1%

13.1% during the twelve

the

ending September.

3.4

months

Reflecting the development of Hong Kong as a major

financial centre, foreign currency deposits continued to grow

at a faster rate than Hong Kong dollar deposits. By the end

of September, such deposits totalled $296 billion.

The

interest rates offered on many forms of foreign currency

deposits, including US dollar deposits, were generally higher

than those offered on Hong Kong dollar deposits. The strength of some major currencies such as the Yen and the

Deutschemark has also attracted deposits in such currencies.

In response to this trend, more banks are offering foreign

currency deposit facilities, and many banks are extending

them to small depositors. Foreign currency deposits grew by

9.1% during the third quarter, and by 35.7% during the twelve months ending September. After adjusting for swap deposits,

the corresponding rates of increase were 10.2% and 36.7%.

3.5

Deposits (covering all currencies) with banks grew

by 9.6% during the third quarter, while those with deposit-taking companies fell by 7.8%. At the end of the

quarter, they amounted to $452.5 billion

billion and $73.0 billion

respectively.

/3.6

(4) Foreign currency swap deposits are deposits involving customers buying spot foreign currencies and placing them on deposit with financial institutions, but at the same time entering into a contract to sell forward such foreign currencies (principal plus interest) to the financial institutions on maturity of such deposits. For most analytical purposes, they should be regarded as Hong Kong dollar deposits. The Monetary Affairs Branch has been collecting statistics on foreign currency swap deposits from all the

the banks (but not deposit-taking companies) since December 1984. Although the relative attraction of swap deposits was reduced after the abolition of the interest withholding tax on Hong Kong dollar deposits in October 1983, there are clearly still occasions when the margin between the market interest rates and the deposit rates administered by the HKAB creates an incentive to place funds on a swap basis. It has long been recognised that the existence of swap deposits may distort the underlying trend in the monetary statistics and hence render interpretation difficult. The availability of statistics on swap deposits should aid interpretation.

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