The Hong Kong Association of Banks (HKAB) today is likely to reject the banking regulator's proposal to introduce a composite rate to replace the prime lending rate as a benchmark for mortgage loans, according to an industry source. The source told the South China Morning Post that a HKAB working group formed by major bankers had reached a conclusion that 'there is no need for the new composite rate to be introduced at the moment'. The working group's view would be the key item to be discussed at a HKAB board meeting today, the source added. 'The HKAB will seriously consider the views of the working group. As a result, it is highly likely that the association would say 'no' to the proposals by the Hong Kong Monetary Authority,' the source said. The association will submit a formal response to the authority after the meeting. The HKMA proposed in June to replace the prime lending rate as a benchmark for mortgage loan pricing. Under the proposal, mortgage rates will be priced against a reference composite rate that reflects the average cost of funding in the industry rather than against prime lending rates. In a paper given by the HKMA to the association, the authority said the changes would better reflect the average cost of funding of the banking industry by referencing the interbank offered rates on the wholesale money market and effective deposit rates. But the source said the HKAB working group concluded most bankers would not want to switch to such a rate since the cost of funding for some banks might be higher than such an average. 'An average funding cost is only a market average which might not be truly indicative of individual banks' cost of funding. It will be difficult for bankers to reach a consensus among all banks on the composite rate. If the HKMA sets such a composite rate, it will reduce the individual banks' flexibilities on pricing their mortgage,' one banker said. 'Customers might also find the composite rate, which is new to them, to be even more difficult to understand than the prime rate. It may also lead mortgage borrowers to feel confused if all the existing mortgage loans need to be priced at the new composite rate.'