Banks cut rates as challenges increase

Top News | Bloomberg and Tereza Cai 1 Nov 2019

The Hongkong and Shanghai Banking Corp lowered its Hong Kong prime lending rate by 12.5 basis points to 5 percent for the first time in 11 years, underscoring the challenges facing the SAR.

Following on were BoC Hong Kong and Hang Seng Bank, which cut best lending rates by 12.5 basis points to 5 percent, while Standard Chartered Bank (Hong Kong) went to 5.25 percent from 5.375 percent. The Bank of East Asia cut its best lending rate from 5.375 percent to 5.25 percent.

The moves followed the Hong Kong Monetary Authority taking its benchmark interest rate to 2 percent from 2.25 percent.

That kept the currency peg in line with the US dollar after the US Federal Reserve's quarter-point cut in borrowing costs.

Authority chief executive Eddie Yue Wai-man said there had not been any capital exit and foreign exchange and money markets were operating smoothly.

"It is hard to say whether the Hong Kong interbank rates will follow the US rate," he said. "However, the US rate cut does reflect the downward pressure on the global economy, to which Hong Kong is not immune."

The HKMA has cut interest rates three times by a combined 75 basis points since August. Before that it kept the rate unchanged for 10 years.

Unlike the reactions to two previous rate cuts by the HKMA, the Hong Kong commercial banks followed the authority with the SAR economy in a downturn. And it is widely expected more banks will follow suit.

The cut by HSBC taking effect today will likely help the SAR economy and companies, said George Leung Siu-kay, the bank's Asia-Pacific adviser. There was not much room for banks to any lower, he added, so the reduction will probably be the last this year.

Leung also stressed the move was a commercial decision rather than one brought on by political pressure. Still, HSBC has a social responsibility as a major local bank, and the hope is that the rate cuts will provide relief in local enterprises' borrowing costs.

"We expect there's still downward pressure on the US rate," Leung said. "This is likely to make the operating environment for banks like HSBC more challenging, but we hope it will bring some relief to our customers and maybe a little bit of sunshine to the gloomy economic outlook."

The last interest rate adjustment by HSBC was in September last year, raising its best lending rate to 5.125 percent from 5 percent. And the cut this time took it back to the level of November 2008.

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