Loan rates expected to stay low in Hong Kong

Hong Kong banks are expected to keep lending rates low for the rest of the year despite the possibility the US central bank may taper its quantitative easing programme.

Major commercial banks in the city, including Standard Chartered and HSBC, have said they expected slower loan growth for the rest of the year, partly because lending grew quickly in the first half. That credit expansion came off the back of demand from mainland companies.

In the second half, as the mainland economy continues to cool, bankers expect loan growth to slow further in Hong Kong, forcing banks to compete over quality borrowers. This could hit lenders' net interest margin (NIM), a measurement of profitability based on the difference between interest rates on loans and deposits. Banks' NIM had widened in the first half compared with the end of last year.

"Loan demand continues, but it is not a good time to chase rapid loan growth as the macro outlook is quite uncertain," said Donald Lam Yin-shing, head of corporate and commercial banking at Hang Seng Bank.

Total loans and advances in the city jumped 9.5 per cent in the first half of the year. Most of this growth was fuelled by foreign-currency loans for use outside Hong Kong, especially in trade finance. The Hong Kong Monetary Authority expects credit expansion to slow in the second half, after conducting meetings with 20 banks in the city that recorded rapid loan growth in May and June.

A senior executive at the Hong Kong unit of a major mainland bank said the bank used to have many "big firms" borrowing from it. "But now we have to pitch loans to those big firms," he said.