DBS became the first bank in Hong Kong to raise its mortgage rate yesterday as the Hong Kong inter-bank offered rate (HIBOR) continued its aggressive climb.

The mid-sized bank announced an increase of 20 basis points, raising the rate from 2.5 to 2.7 percent.

DBS raised its mortgage rate 20 basis points yesterday, but other local banks weren't so quick to follow suit. Zhang Ting

The benchmark three-month HIBOR in Hong Kong reached a high of 2.48 percent yesterday before easing to 2.25 percent later in the day.

A climbing inter-bank rate suggests tightening liquidity in the global capital market, making it more costly for banks to lend money, especially for small to mid-sized banks.

However, other smaller banks that rely heavily on the inter-bank market for capital were hesitant to follow DBS's lead yesterday.

Mortgage rates remained unchanged for Bank of East Asia (BEA), ICBC (Asia), Wing Lung and Wing Hung banks.

ICBC (Asia) Director Stanley Wong, however, conceded that the strong HIBOR is hurting the banking sector, but he said that his bank will wait for one or two others to hike rates before it considers an increase.

"I believe other banks will follow, because the sector is experiencing a common pressure," he said, speculating that further interest-rate hikes may be made this week.

A spokesperson from BEA also said that the bank will closely monitor interest changes in the market before making a decision.

Other major banks in the territory also took a more cautious stance on rate hikes, reiterating to the media yesterday that no new changes had been made to the current mortgage rates.

HSBC, Standard Chartered Bank and Hang Seng Bank all said that there are no immediate plans to raise rates.

Hang Seng Bank Chief Executive Raymond Or said last week that the strengthening HIBOR is pressuring banks to increase mortgage rates, which had seen a relentless fall since the implosion of the United States subprime crisis.

The bank said yesterday that it wants to keep the mortgage rate at the level of 2.75 percent less than the prime rate.

DBS Managing Director and Head of Consumer Banking Sunny Cheung said it took decisiveness and courage to be the first bank to increase its mortgage rate.

He said the bank expects the HIBOR to continue its upward spiral, at least in the short term. "We believe other banks will follow suit in the near future," Cheung said.

DBS Senior Investment Strategist Daniel Chan concurred with that view. He noted that the three-month HIBOR had already made a precipitous climb from 1.8 percent in mid-May to hover around 2.36 percent in recent weeks.

"There are indications that some money is exiting the territory," Chan said. "The grip on the capital market is more severe on small banks than the big, dominant banks."

(China Daily 06/17/2008 page2)