Hong Kong Banks Cut Prime Rates for First Time in Five Years Amid Lower Funding Costs

HSBC and Bank of China (Hong Kong) have reduced their prime lending rates by a quarter percentage point, marking the first rate cut among Hong Kong banks since 2019.

This move reflects a broader effort to ease funding costs for local businesses and mortgage borrowers as the city’s largest commercial banks react to recent economic conditions.

Starting on Friday, HSBC’s prime lending rate will decrease by 0.25 percentage points to 5.625 per cent. The bank will also lower its savings rate by the same margin to 0.625 per cent per annum for deposits exceeding HK$5,000 (US$640). Accounts with less than that amount will not earn any interest. Similarly, Bank of China (Hong Kong) will reduce the lending rate for its best customers to 5.625 per cent, effective September 23.

This rate reduction follows the Hong Kong Monetary Authority’s (HKMA) decision to cut its base rate by 50 basis points, mirroring the half-percentage point cut announced by the US Federal Reserve overnight. The adjustment has had an immediate effect on the Hong Kong-dollar interbank offered rate (Hibor), which influences the cost of borrowing among the city’s banks.

“Our decision to reduce our Hong Kong dollar interest rates reflects both the US Federal Reserve’s announcement and the steady softening of Hibor since the beginning of this year,” explained HSBC’s Hong Kong chief executive Luanne Lim in a statement. “Having considered the macroeconomic environment and Hibor trends, we concluded that a reduction is appropriate. We will continue to monitor the evolving macro-outlook and developments in the financial markets, ready to adjust our rates as needed.”

The smaller-than-expected cut in prime lending rates will offer relief to mortgage borrowers who base their loans on the best rates available. For a typical HK$5 million, 30-year loan priced at prime minus 1.75 per cent, the quarter-point rate cut brings the mortgage rate down to 3.875 per cent. According to mortgage broker mReferral, this adjustment will reduce the monthly payment by HK$720 to HK$23,512.

As of the end of July, Hong Kong homebuyers held a total of HK$1.868 trillion in outstanding mortgage loans with banks. The average size of a mortgage stood at HK$4.53 million, according to data from the HKMA.

“A rate cut, even a small one, will definitely be helpful to the property market,” said mReferral’s chief vice-president Eric Tso Tak-ming.

HSBC’s previous cut to the prime rate occurred in November 2019, when it reduced the rate by 12.5 basis points during a period when Hong Kong was on the brink of recession.

By fLEXI tEAM