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Competition in the Hong Kong Banking Sector: Interest Rate Wars  
 
Product Ref: 05/210C Company: N/A

Product Type: Case Industry: Banks & Diversified Financials

Related Product(s): Teaching Note
This case investigates the effects of the Interest Rate Rules (IRRs) on banks in Hong Kong, as well as on depositors. With the IRRs, the Hong Kong Association of Banks (HKAB) acted as a cartel to set the maximum interest rate of certain Hong Kong dollar deposits. Charging almost uniform interest rates, banks in Hong Kong have relied on non-price competition to attract deposits. After the deregulations of interest rates in the 1990s and 2000s, banks are free to set deposit rates according to the market condition and their own strategies. Despite the general expectation of banks offering higher rates to compete for deposits, the sluggish loan demand and ample liquidity after the Asian Financial Crisis veiled the potential price competition among banks. Changes in deposit rates, deposit base, as well as profitability and risk of banks are identified. The findings provide a factual base for analysing the competitions in the banking industry.
Functional Area : Economics & Business Policy

Issues: Interest rates, Hong Kong, Deregulation, Competition, Banks, Asian Crisis, Cartel
Length: 14 pages Country: Hong Kong SAR

Pub. Year: 2005 Level of Difficulty: 1
         
This product type is available in the following language(s):      English
         
Related Information: N/A
 
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