(Yicai) Feb. 24 -- Hong Kong's higher deposit rates and a stock market rebound are prompting retail investors from the Chinese mainland to open bank accounts in the special administrative region.

Set on opening accounts, mainlanders recently formed long lines outside HSBC's branch on Nathan Road in Mong Kok, while the next available appointment at a nearby branch of Bank of China was seven days away.

The interest rate differential between the mainland and Hong Kong is widening as mainland banks have slashed their US dollar deposit rates in anticipation of rate cuts by the US Federal Reserve. 

For instance, Bank of Nanjing has dropped its three-month fixed deposit rate from 4.3 percent to 2.1 percent, and its one-year rate from 4.1 percent to 2.5 percent. Additionally, mainland lenders offer even lower returns on yuan-denominated deposits.

Major banks in Hong Kong offer rates of 3.5 percent or higher for six-month US dollar deposits, with HSBC at 3.7 percent and Fubon Bank at 4.1 percent. The spread between mainland and Hong Kong banks now averages above 150 basis points.

Hong Kong has a linked exchange rate system, with the local dollar pegged to the US dollar, an analyst said, so rates on Hong Kong dollar time deposits, although also lower following the Fed’s cuts last year, still remain relatively high. Hong Kong’s competitive banking market also means lenders need to offer higher rates to attract depositors, the person said.

In contrast, mainland banks have less room to respond to US rate cuts, so they are preemptively lowering US dollar deposit rates to avoid higher deposit costs should the Fed cut soon, the analyst added.

The recent rally in Hong Kong's stock market and sharp rises in technology stocks are a further draw for mainland investors. The Hang Seng Technology Index reached a new high of 5,859.30 points on Feb. 21, up almost 40 percent from a Jan. 13 low, to outperform major global stock markets.

Many mainland investors queuing outside banks in Hong Kong told Yicai that they intended to open accounts either to trade Hong Kong-listed stocks or to purchase US dollars when exchange rates are favorable.

Editors: Tang Shihua, Emmi Laine