Holistic interest rate strategy for Hong Kong banks
How Hong Kong banks can manage interest rates holistically across both sides of the balance sheet.
In line with the recent interest rate hikes by the Federal Reserve, on May 4, Hong Kong’s Monetary Authority (HKMA) set the base rate to 5.5 percent - the highest rate since 2008.
In parallel, the HKMA withdrew liquidity from the banking sector to maintain the peg to the US dollar, resulting in a rise in the Hong Kong dollar interbank offer rate (HIBOR). The HKMA’s repeated interventions to maintain the currency peg to the dollar drained the interbank liquidity to a level not seen for 15 years.
The rising interest rates enabled banks to post record profits in their cash management and retail banking businesses. However, times ahead will be more challenging as low liquidity levels in the interbanking system and the rising HIBOR will take their toll on both sides of the balance sheet.
