HSBC cuts Hong Kong best lending rate, first since financial crisis

[HONG KONG] HSBC Holdings lowered its best lending rate in Hong Kong for the first time since the global financial crisis, underscoring the economic challenges facing the financial hub.

The London-based bank cut its prime lending rate by 12.5 basis points to 5 per cent in Hong Kong. The city's government is set to release data on Thursday that's expected to show the local economy entered a technical recession in the third quarter, with retail and tourism sectors battered by almost five months of anti-government protests.

HSBC's cut, to take effect on Friday, will likely help the Hong Kong economy and companies, George Leung, the bank's Asia-Pacific adviser, said at a briefing. There's not much more room for banks in the city to lower further, and the reduction will probably be the last this year, he said.

The move comes after the Hong Kong Monetary Authority cut its benchmark interest rate on Thursday, in line with the city's currency peg to the dollar following the US Federal Reserve's reduction in borrowing costs. The HKMA lowered its base rate to 2.00 per cent from 2.25 per cent, hours after the Fed's quarter-point cut, according to the institution's page on Bloomberg. As the Hong Kong dollar is linked to the greenback, the territory essentially imports US monetary policy.

"Looking ahead, we expect there's still downward pressure on the US rate," Mr Leung said. "This is likely to make the operating environment for banks like HSBC more challenging in the future, but we hope that it will bring some relief to our customers and maybe a little bit of sunshine to the gloomy economic outlook."

The Hong Kong government has laid out policy support including boosting loans to small businesses and cutting banks' capital buffers to mitigate an economic downturn through the months-long unrest. It also announced plans this month to help first-time homebuyers break into the world's least-affordable property market.

"It is hard to say whether the Hong Kong interbank rates may follow the US rate," HKMA chief executive Eddie Yue had said at a briefing earlier on Thursday. "However, the US rate cut does reflect the downward pressure on the global economy, to which Hong Kong is not immune."

BLOOMBERG