Hong Kong banks may not cut their prime rates this year, but local interbank rates will still follow US rates lower, benefiting a majority of borrowers, according to a senior executive of the Hong Kong Monetary Authority (HKMA).
Analysts widely expect the US Federal Reserve to cut its key rate by three-quarters of a point this year, but Hong Kong commercial banks are unlikely to cut their prime lending rates more than they already have.
“It would be hard for banks to cut their prime rate any further because they can no longer cut their savings rate, which is now close to zero,” said HKMA deputy chief executive Arthur Yuen Kowk-hang.
“If they cut the prime rate but not their savings rates, it would narrow their net interest margins, which would affect their interest income. From a risk-management perspective, it is not ideal for the banks to do so.”
Yuen said the current net interest margin of Hong Kong lenders was about 1.4 per cent, which was among the narrowest worldwide; in most major economies it is above 2 per cent.
The HKMA has followed the Fed’s monetary policy since 1983 under its linked exchange-rate system, but commercial banks retain discretion in setting their prime and deposit rates.
