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Hong Kong Monetary Authority (HKMA)

No system rot to surface from Hibor probe

Banking body says investigation about a specific case, not into a broader industry failure

PUBLISHED : Wednesday, 02 January, 2013, 12:00am
UPDATED : Wednesday, 02 January, 2013, 4:24am

An investigation into the setting of Hong Kong's interbank interest rates is unlikely to reveal any misconduct that had a major social impact because rates have been low for years, says the Hong Kong Association of Banks.

But the industry body admitted there might have been some "wilful intention" to manipulate the rates, which could dent banks' integrity and reputation.

"The recent Hibor [Hong Kong interbank offered rate] investigation is a case-specific issue, not a systemic problem," said Benjamin Hung Pi-cheng, the association's newly appointed chairman, adding that Hong Kong's interbank interest rates are set differently from other places.

Hung said Hibor rates had not moved significantly compared with interbank rates elsewhere. For example, the one-month interbank lending rate in Hong Kong stands at about 20 to 30 basis points while the three-month rate is about 40 basis points, which is "considered relatively low".

The Hong Kong Monetary Authority (HKMA) said on December 20 that it began investigating UBS over the setting of Hibor after receiving information from overseas regulators.

The HKMA had said then that it was trying to determine if there had been any misconduct by UBS in Hong Kong and, if so, whether that had any "material impact on the Hibor fixing results".

Interbank rates are based on interest rates that banks set daily.

The HKMA's announcement of the probe came just a day after UBS agreed to pay US$1.5 billion in fines for its role in rigging the London interbank interest rate (Libor).

Market players have expressed concern that banks other than UBS in Hong Kong might be involved in the Hibor probe.

Hung, who is also the chief executive of Standard Chartered's Hong Kong unit, declined to comment on whether other banks were under investigation.

On whether the Association of Banks should hand supervision of the Hibor-setting mechanism to other regulators, Hung said it was too early to say as the HKMA had yet to complete its investigation.

Hung did not think there were any regulatory lapses by the Hong Kong authorities because Hibor and Libor served different purposes and also because the rate submission processes were different.

The Hong Kong interbank lending rate serves as a benchmark for a range of products, including home mortgages and complicated financial derivatives. The rate is used in contracts for time periods ranging from overnight to 12 months.