Some Hong Kong banks finally cut lending rates

HONG KONG (Reuters) - Some Hong Kong banks, including HSBC, finally cut their prime rates on Friday following a drop in interbank rates, after ignoring official rate reductions in the past two months as the global financial crisis deepened.

But Friday's rate cuts of 25 basis points each were small and other banks left lending rates unchanged. That was despite a plunge in interbank rates in the past week as central banks in Europe and Asia eased monetary policy to try to contain the biggest financial crisis in decades.

HSBC (0005.HK) (HSBA.L) said it would reduce its best lending rate to Hong Kong customers by 25 basis points to 5 percent, its lowest level since November 2004, from Monday.

"The interbank rate level has come down, so there is room for an interest rate cut under these conditions," a spokeswoman for the bank said.

Citigroup said the rate cut was "mildly positive" for an economy that could soon tip into recession, but was offset by a global recession, banks' credit tightening and weak confidence among consumers, businesses and homebuyers.

"A 25 basis point prime rate cut cannot resolve these problems," Joe Lo, Citi's senior economist, said in a research note.

Standard Chartered (2888.HK) (STAN.L), HSBC's subsidiary Hang Seng Bank (0011.HK) and Bank of East Asia (0023.HK), also announced quarter-point cuts in their best lending rates, effective from Monday.

Rival DBS Bank (DBSM.SI) said it would keep its rates unchanged but would keep monitoring the market situation.

HIBOR FALLS FURTHER

Hong Kong interbank rates (Hibor) fell further on Friday, tracking U.S. dollar Libor (London interbank offered rate) rates, which were pushed lower by the Bank of England's aggressive 150 basis point cut and the European Central Bank's 50 basis point reduction on Thursday.

The one-month Hibor HKD1MD= was fixed on Friday at 1.19214 percent, its lowest level since February 2005 and down from a recent peak on Oct. 10 at 4.99286 percent.

The three-month Hibor HKD3MD= was fixed on Friday at 2.23714 percent, the lowest level since Sept. 17 just after the collapse of U.S. investment bank Lehman Brothers.

A surge in interbank rates globally in the wake of Lehman's collapse has squeezed banks' profit margins. As a result, until HSBC's unexpected move on Friday, Hong Kong banks had kept their lending rates unchanged, and raised mortgage rates, despite official interest rate cuts.

Hong Kong tracks U.S. monetary policy because of its currency peg to the U.S. dollar and the central bank, the Hong Kong Monetary Authority (HKMA), has cut its benchmark rate twice since early October, mirroring U.S. rate cuts.

Hong Kong banks, however, have some leeway to lag U.S. rate moves and ignored those two rate reductions which saw the HKMA slash its benchmark rate by 200 basis points in total.

In Hong Kong, a spate of fund injections into the money market by the HKMA -- the latest on Friday afternoon to curb an appreciating Hong Kong dollar -- has also put downward pressure on interbank rates.

Savings rates offered by Hong Kong banks are virtually at zero and HSBC and Hang Seng did not cut deposit rates on Friday, but Standard Chartered said it would adjust savings rates.

Hong Kong's exports and retail sales have slowed sharply in the past few months as global demand for Asian goods has slowed and local consumers have been hit by heavy losses on the stock market.

Consumers' declining confidence has also pushed down property sales and a number of economists forecast Hong Kong will soon enter a recession after a five-year boom.

(Editing by Anne Marie Roantree and Alex Richardson)