Hong Kong's largest commercial banks trimmed their prime lending rates for the first time in almost five years, as they reduced their funding costs to help local businesses and mortgage borrowers.
HSBC's prime lending rate will fall by a quarter percentage point at 5.625 per cent starting on Friday, while its saving rate will be reduced by the same margin to 0.625 per cent per annum for deposits that exceed HK$5,000 (US$640), the bank said. Accounts with less than that amount earn no interest.
Bank of China (Hong Kong) reduced the loans rate for its best customers by the same margin to 5.625 per cent, effective September 23, according to a statement.
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The HKMA today cut its base rate by 50 basis points in lockstep with the half-percentage point cut overnight by the US Federal Reserve. The move has an immediate effect on the Hong Kong-dollar interbank offered rate (Hibor), which is the cost of funding among the city's banks.
"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," HSBC's Hong Kong chief executive Luanne Lim said in a statement. "Having considered the macroeconomic environment and Hibor trends, we concluded that a reduction is appropriate. We will continue to monitor the evolving macro-outlook and developments in the financial markets, ready to adjust our rates as needed".
The smaller-than-expected cut in banks' prime rates would help mortgage borrowers who tie their loans to the best rates offered to customers. For a typical HK$5 million, 30-year loan priced at prime minus 1.75 per cent, a quarter-point cut reduces the mortgage rate to 3.875 per cent, cutting the monthly payment by HK$720 to HK$23,512, according to mReferral, a mortgage broker in the city.
Hong Kong homebuyers have a total of HK$1.868 trillion in outstanding mortgage loans with banks as of the end of July, with the average size of a mortgage at HK$4.53 million, according to the HKMA's data.
"A rate cut, even a small one, will definitely be helpful to the property market," said mReferral's chief vice-president Eric Tso Tak-ming.
HSBC last cut the prime rate in November 2019 by 12.5 basis point, which also came at a time when the city was on the brink of a recession.
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