Hong Kong Proposes Increase in Bank Deposit Protection to HK$800,000 Amid Safety Concerns

The government agency in Hong Kong has put forward a proposal to widen the safety net for bank depositors in the event of a bank failure.

The proposal suggests increasing the deposit protection from the current HK$500,000 to HK$800,000 per depositor. The deposit protection scheme, established in 2006, is funded by banks and aims to provide financial security to depositors. This increase comes after recent bank collapses in the United States, which drew attention to the issue of deposit safety.

According to Connie Lau Yin-hing, Chairman of the Hong Kong Deposit Protection Board, the proposed increase is part of a regular review to enhance the system, although international developments were also taken into consideration. If approved, the new deposit protection ceiling will align Hong Kong with countries like the United Kingdom, Germany, and Ireland, while surpassing the safety nets of mainland China and Singapore.

Daryl Ho, CEO of the board, emphasized that the proposed cap would meet international standards and provide sufficient protection to depositors without imposing excessive costs. The new cap would cover approximately 92 percent of all depositors, meeting the international benchmark of 90 percent. In contrast, the current cap at HK$500,000 covers 89 percent of bank depositors.

The proposal includes a three-month period of public consultation to gather opinions on various aspects, including how to collect funds from banks to build up the additional cover. Additionally, enhancements are being considered to provide extra protection for six months in the event of a merger between two banks.

The implementation of the proposed ceiling increase is expected to begin in 2025. As it stands, banks currently contribute an average annual fee of HK$581 million to a HK$6.3 billion fund. With the new ceiling, banks would be required to pay an average of HK$153 million more towards a protection fund totaling HK$8.2 billion.

The proposal aims to strengthen the confidence of depositors and bring Hong Kong's deposit protection system in line with international standards. The outcome of the public consultation will shape the final decision on the revised deposit protection scheme.

By fLEXI tEAM