Hong Kong Banks Rate Cut Unlikely to Save Property Market
9 November 2008
HSBC led six Hong Kong banks cut prime lending rates on Friday by 25 basis points, as a result of sharp falling recently after the Hong Kong Monetary Authority (HKMA) introduced a series of rescue measures to ease the credit crunch. Heng Sang Index up rose by 3.3%, with real estate developer shares rallying, betting on cheaper credit to stimulate home purchases. However, analysts warned the rate cut is unlikely to save the property market from slumping to an abyss and the effect on real economy is minimal.
HSBC announced that it would reduce its prime lending rate by 25 basis points to 5%, its lowest level since November 2004, followed by Bank of China (Hong Kong). Standard Chartered Bank, Hang Seng Bank, Bank of East Asia, Citibank (Hong Kong), Chong Hing Bank and Dah Sing Group followed by announcing to cut their prime lending rate from 5.5% to 5.25%.
The rate cut sent property blue-chips to soar. Sun Hung Kai Properties rose 6.2% to HKD69.00, Cheung Kong gained 5.3% to HKD79.20, while New World Development advanced 6.1% to HKD7.00.
The HKMA has cut its benchmark rate twice in the past two months, following the rate cuts by the US Federal Reserves, due to its currency peg to the US dollar. However, the interbank rates had remained stubbornly high in the wake of Lehman Brothers’ collapse which has squeezed banks’ profit margins. This left Hong Kong banks little room to follow the rate reductions but to keep their lending rates unchanged until HSBC’s unexpected announcement on Friday.
The HKMA, in the meantime, has been injecting funds to the money market and introduced a series of measures to help banks to get access to liquidity, which has curbed an appreciating Hong Kong dollar and also put downward pressure on interbank rates.
The one-month Hong Kong interbank rates (Hibor) has been steadily falling down from a recent peak on October 10 at 4.99% to 1.19% on Friday, its lowest level since February 2005. The three-month Hibor on Friday was 2.24%, the lowest since September 17 after the collapse of Lehman Brothers.
The Executive Director of HSBC said. “The interbank rate level has come down, so there is room for an interest rate cut under these conditions.”
A director at Barclays Capital said that rate cuts at retail level indicated “the liquidity among banks has been improved and the confidence restored”, which he interpreted as a signal that the financial market is moving towards stability. However he is not optimistic that a 25 basis points cut could stem the economic downward spiral.
However, the rainy days for the real estate market are far from over. Analysts predict property prices and transaction volume in Hong Kong will continue to decline in the first two quarters in 2009, at least.
A property analyst said, “A 25 basis points cut can only save home buyers several hundred in paying back mortgages, but that is not the point. The point is that the banks just will not lend.”
The mortgage rates Hong Kong banks offered is usually made on a case by case basis. Therefore, when expecting property price continues to fall, banks need to better control risks by tightening mortgage lending criteria.
Moreover, there has been more than 30 Hong Kong listed companies announcing profits warnings within a month; and many more small and medium enterprises were forced to closure. A looming recession, weakening consumer sentiments, deteriorating corporate earnings have also made banks more conservative in granting loans.
Even though the market expects to see deep rate cuts by Hong Kong banks in the coming days if the next US Fed meeting in December decides to slash the benchmark rates to below 1%, the real economy is still at the verge of recession and the recovery will be painstakingly long.
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Hong Kong Banks Rate Cut Unlikely to Save Property Market
9 November 2008
HSBC led six Hong Kong banks cut prime lending rates on Friday by 25 basis points, as a result of sharp falling recently after the Hong Kong Monetary Authority (HKMA) introduced a series of rescue measures to ease the credit crunch. Heng Sang Index up rose by 3.3%, with real estate developer shares rallying, betting on cheaper credit to stimulate home purchases. However, analysts warned the rate cut is unlikely to save the property market from slumping to an abyss and the effect on real economy is minimal.
HSBC announced that it would reduce its prime lending rate by 25 basis points to 5%, its lowest level since November 2004, followed by Bank of China (Hong Kong). Standard Chartered Bank, Hang Seng Bank, Bank of East Asia, Citibank (Hong Kong), Chong Hing Bank and Dah Sing Group followed by announcing to cut their prime lending rate from 5.5% to 5.25%.
The rate cut sent property blue-chips to soar. Sun Hung Kai Properties rose 6.2% to HKD69.00, Cheung Kong gained 5.3% to HKD79.20, while New World Development advanced 6.1% to HKD7.00.
The HKMA has cut its benchmark rate twice in the past two months, following the rate cuts by the US Federal Reserves, due to its currency peg to the US dollar. However, the interbank rates had remained stubbornly high in the wake of Lehman Brothers’ collapse which has squeezed banks’ profit margins. This left Hong Kong banks little room to follow the rate reductions but to keep their lending rates unchanged until HSBC’s unexpected announcement on Friday.
The HKMA, in the meantime, has been injecting funds to the money market and introduced a series of measures to help banks to get access to liquidity, which has curbed an appreciating Hong Kong dollar and also put downward pressure on interbank rates.
The one-month Hong Kong interbank rates (Hibor) has been steadily falling down from a recent peak on October 10 at 4.99% to 1.19% on Friday, its lowest level since February 2005. The three-month Hibor on Friday was 2.24%, the lowest since September 17 after the collapse of Lehman Brothers.
The Executive Director of HSBC said. “The interbank rate level has come down, so there is room for an interest rate cut under these conditions.”
A director at Barclays Capital said that rate cuts at retail level indicated “the liquidity among banks has been improved and the confidence restored”, which he interpreted as a signal that the financial market is moving towards stability. However he is not optimistic that a 25 basis points cut could stem the economic downward spiral.
However, the rainy days for the real estate market are far from over. Analysts predict property prices and transaction volume in Hong Kong will continue to decline in the first two quarters in 2009, at least.
A property analyst said, “A 25 basis points cut can only save home buyers several hundred in paying back mortgages, but that is not the point. The point is that the banks just will not lend.”
The mortgage rates Hong Kong banks offered is usually made on a case by case basis. Therefore, when expecting property price continues to fall, banks need to better control risks by tightening mortgage lending criteria.
Moreover, there has been more than 30 Hong Kong listed companies announcing profits warnings within a month; and many more small and medium enterprises were forced to closure. A looming recession, weakening consumer sentiments, deteriorating corporate earnings have also made banks more conservative in granting loans.
Even though the market expects to see deep rate cuts by Hong Kong banks in the coming days if the next US Fed meeting in December decides to slash the benchmark rates to below 1%, the real economy is still at the verge of recession and the recovery will be painstakingly long.
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