THE two key banks in Hong Kong yesterday threatened to increase loan charges if the interest rate ceiling for seven-day time deposits, regarded as the last barricade for the interest-rate cartel, is removed. While the Hong Kong Monetary Authority continues a survey of the impact of the deregulation, Hongkong Bank and Hang Seng Bank yesterday warned that they might have to end the practice of subsidising some bank services and pass on costs to customers. The chief executive of the Hongkong Bank, John Gray, said: 'The problem is, in my view, that if we proceed very nearly with all the recommendations the bank is going to have to look to its profit and loss account. 'We are part of the business that is subsidising the other part of the business, and I think the bank will have to look seriously at the charging mechanism.' He added he had always been opposed to interest rate deregulation. Sir William Purves, chairman of HSBC Holdings which owns Hongkong Bank, urged the authorities to freeze the move for two years. 'Deregulation has, to a great extent, already taken place. If I was in charge of it - and I have no influence on this - I would keep it where it is for the next two years,' Sir William said yesterday in London. 'There is enough uncertainty as we move to the change in sovereignty.' Sir William warned that the bank might have to impose minimal balances or charges on accounts in order to compete in a more liberal environment, a warning echoed by Hang Seng Bank chairman Sir Quo-wei Lee. 'There are many types of loans,' Sir Quo-wei said. 'We might consider increasing the charge for some categories of loans.' Sir Quo-wei declined to specify what types of loan would suffer. He said the bank would have to look at deposit migration if the third phase of the deregulation took place in the short term. 'It depends on how much would be transferred to time deposits,' he said. 'If the amount is large, the bank might not be able to shoulder all the extra interests.' Both Hongkong Bank and Hang Seng Bank said interest margins had narrowed after the removal of the interest rate agreement for all time deposits over seven days. Alexander Au, Hang Seng Bank's vice-chairman and chief executive, said the growth of interest payable was much larger than that of the interest receivable in the first half of this year. He said it would be too soon to go ahead with the third phase of the deregulation this year. The third phase, under which all banks would quote interest rates on deposits over 24 hours, was slated for April. However, the Government decided to defer the move in March, fearing that large amounts transferred from time deposits to fixed deposit might threaten the stability of the banking system. Analysts believed the delay also was due to strong opposition from territory bankers. Hong Kong freed deposit rates longer than one month in October 1994 and extended the move to one-week time deposits in January. After strong opposition from banks in the territory, some observers doubt whether implementation of the final phase will be possible after the Hong Kong Monetary Authority finishes its survey in September.