SINGAPORE - Foreign lenders with retail banking operations in Singapore are out in force to draw customers with higher-than-usual interest rates for fixed deposits.

Last month, the Australia and New Zealand Banking Group introduced a step-up deposit offering an increasing interest rate with an option to withdraw funds every quarter. More foreign banks have now joined the fray with interest rates of more than 1 per cent per annum, with some offering up to 1.5 per cent for a one-year deposit.

British bank Standard Chartered fired the latest salvo with a 1.88 per cent rate on current account savings. Depositors need to spend at least S$500 per month on their credit or debit cards to qualify.

Mr Dennis Khoo, head of consumer banking, Singapore, at StanChart, said: "You don't get rewards from your credit cards, but you get a high interest rate of 1.88 per cent. We do believe that most customers who have fixed deposits under S$50,000 will migrate to this product."

Since its launch a week ago, StanChart has received an average daily sign-up rate of 500 accounts.

Analysts say the aggressive funding exercise may be due to Basel III rules, which require major international banks to increase their capital as a safeguard against financial crises.

"To grow, (banks) need funds. So, it is part and parcel of their long-standing strategy," said Mr Ritesh Maheshwari, managing director of Asia-Pacific financial services ratings at Standard & Poor's.

Local banks are not resting on their laurels, and several lenders are offering promotional rates of up to 0.9 per cent for a 13-month deposit.

While falling short of rates offered by foreign banks, "local banks still have a strong franchise among the depositors so they don't really need to go on a price war to compete for deposits", said Mr Alfred Chan, director of financial institution at Fitch Ratings. Thomas Cho