HSBC cut its key benchmark rate in Hong Kong for the first time since 2019, a move likely to hit margins while bringing relief to homeowners and borrowers in the Asian financial hub.
HSBC cut its best lending rate to 5.625% from 5.875% in Hong Kong, according to a statement. It was followed shortly after by Bank of China (Hong Kong) and Standard Chartered, which also lowered their prime rate by 25 basis points (bps). All three banks also cut deposit rates.
The move came hours after the Hong Kong Monetary Authority lowered its base rate by half a percentage point, keeping in step with the US Federal Reserve. The Asian financial hub’s monetary policy moves in tandem with the US to preserve the local dollar’s peg with the US currency.
“Our decision to reduce our Hong Kong dollar interest rates reflects both the US Federal Reserve’s announcement and the steady softening of HIBOR since the beginning of this year,” Luanne Lim, CEO for Hong Kong at HSBC, in the statement. “We will continue to monitor the evolving macro-outlook and developments in the financial markets, ready to adjust our rates as needed.”
The UK bank, which counts Hong Kong as its biggest market, has been riding an upswing in interest rates for the past few years, posting a record profit 2023. Falling rates will put pressure on new CEO Georges Elhedery, who urged staff to continue cost discipline and spend wisely at his first town hall in Hong Kong in early September.
HSBC is looking to rein in expenses and in recent months started to slow hiring, asking bankers to be more judicious about their travel and entertainment spending.
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HSBC’s Hong Kong business and other lenders “have a lot riding” on the Fed’s tightening cycle, and lower US rates transmitting to the local benchmark could send asset yields and margins lower in the fourth quarter and next year, wrote Bloomberg Intelligence analyst Francis Chan in a note.
Still, given the matching cuts to deposit rates, the margin pressure “could be neutral”, BI added.
As of the first half, HSBC had US$275 billion ($355.16 billion) of customer loans, including corporate lending and mortgages in Hong Kong, close to 30% of its total loans. Higher rates have damped demand for loans from companies and homebuyers.
The UK bank has been reducing its sensitivity to interest rates. Banking net interest income sensitivity to a 100 basis points drop in rates is US$2.7 billion, down from about US$7 billion in 2022, according to its interim results presentation.
