HSBC Holdings Plc, the bank with the biggest network in Hong Kong, and subsidiary Hang Seng Bank Ltd. have kept their local benchmark lending rates at 5.25 percent.
London-based HSBC, BOC Hong Kong (Holdings) Ltd, the city's largest publicly traded bank by assets, and Bank of East Asia Ltd, the third-biggest by assets, in E-mailed statements, broke rank with a quarter-point reduction by Hong Kong's de facto central bank earlier yesterday, which mimicked the Federal Reserve's move to preserve the local dollar's peg to the US currency, Bloomberg News reported. BOC Hong Kong kept its prime rate at 5.25 percent, and Bank of East Asia Ltd at 5.50 percent.
With deposit rates at almost zero, a cut may erode lending profitability in a city where total bank loans jumped 19 percent in March from a year earlier. HSBC's net interest margin in Hong Kong fell to 2.27 percent last year from 2.29 percent in 2006.
"There will be a margin squeeze as the deposit rates can't fall further but the lending rate continues to fall," Lee Yuk Kei, an analyst at Core Pacific-Yamaichi International in Hong Kong, said before yesterday's announcement.
Hong Kong Monetary Authority Chief Executive Joseph Yam yesterday said banks in the city may balk at further lending rate reductions.
"In Hong Kong, there is limited room for deposit rates to go down further and this will affect lending rates too as banks try to maintain the spread," Yam said.
HSBC and its Hong Kong rivals cut the interest they pay on deposits of at least HK$150,000 (US$19,000) to 0.01 percent during the last reduction in March.
"Rates in Hong Kong are too low - there's limited room for Hong Kong lenders to cut the rates further," said HSBC Executive Director Peter Wong yesterday before the bank's rate announcement.
Hang Seng Bank, Hong Kong's second-biggest by assets, kept its local benchmark lending unchanged, said Cecilia Ko, a spokeswoman for the bank in the city.
The city's currency link to the dollar means Hong Kong must follow the Fed's moves even as inflation quickens.
Consumer prices rose 4.2 percent in March from a year earlier, more than double last year's 2 percent average inflation rate.