Banks keep deposit interest rates, prime lending rates flat, despite base rate rise

But analysts say pressure is building, and a positive move upwards for savers may be expected late next year

PUBLISHED : Thursday, 15 December, 2016, 8:14pm
UPDATED : Thursday, 15 December, 2016, 10:51pm

Hong Kong consumers won’t see any change in the interest paid on their savings and deposits, despite the Hong Kong Monetary Authority following the Fed and raising interest rates on lending in the city by 0.25 per cent, at least for the immediate future, after banks chose not to adjust their prime lending rates.

However, analysts said declining liquidity in the system could mean that interest rates may rise in 2017, depending on the pace of capital outflows.

HSBC, Bank of China Hong Kong and Hang Seng said they would keep their prime lending rates at 5 per cent, while Bank of East Asia, and Dah Sing Bank said that they would keep theirs at 5.25 per cent.

Standard Chartered, which also offers a prime rate of 5.25 had not announced any change at the time of going to print.

Savers, however, will still earn rates of less than 0.01 per cent on their deposits across the city’s different banks.

Neither lending nor saving rates has changed since November 2008, despite both Thursday’s interest rate rise and one in December 2015.

The aggregate balance is at approximately HK$250bn. While it has fallen from near HK$400bn in the past year or so, when we last had to think about interest rate rises, ten years or so ago, it was not until the aggregate balance was down to about HK$10 billion
George Leung Siu-Kay, advisor, HSBC Asia-Pacific

However, while last year’s rate rise did not affect the prime rates banks offered to lendings, this year’s may be different, due to the amount of capital that is now starting to leave Hong Kong, suggested analysts.

“When setting interest rates all eyes are on HIBOR [the Hong Kong inter-bank offered rate],” George Leung Siu-Kay, an advisor at HSBC Asia Pacific told the South China Morning Post.

If HIBOR, the benchmark rate at which banks lend to each other, rises significantly, then they would need to raise interest rates to attract more savings to fund their activities.

Leung also added that as Hong Kong’s aggregate balance, which represents the level of interbank liquidity is at an ample level, HIBOR would not be expected to rise quickly.

“The aggregate balance is at approximately HK$250 billion,” Leung said. “While it has fallen from near HK$400 billion in the past year or so, when we last had to think about interest rate rises, ten years or so ago, it was not until the aggregate balance was down to about HK$10 billion.

“Assuming there’s no crisis, we might not have to start thinking about rate rises for another year.”

Tommy Ong, however, head of wealth management solutions, treasury and markets at DBS, expects HIBOR to come under pressure sooner because of capital outflows, and predicted banks to raise their prime rates towards the middle of next year.

“At one time Hong Kong used to be considered a safe haven for capital,” he said.

“Its banking system aggregate balance has been coming down, but there’s still a cushion, which is lower than it was, and that reflects capital outflow.”

Economists suggest that the faster capital leaves the city, the lower Hong Kong’s aggregate balance, and hence the sooner banks will raise their rates.

A faster pace of rate increases in the US would likely accelerate this process, they said, as investing in the US would become more attractive.