Prime lending rates in Hong Kong will remain steady for the time being after the US Federal Reserve (Fed) decided Wednesday to leave the interest rate at the current 2 percent level.

The move, or lack there of, ends the recent trend of rate reductions - seen since the subprime crisis began taking its toll on lenders.

Tracking the US decision, Hong Kong banks such as HSBC, Hang Seng Bank, Bank of China (Hong Kong) and Standard Chartered Bank all said their prime lending rates will remain unchanged in the immediate future.

There are currently two prime lending rates that banks in the territory use: 5.25 and 5.5 percent.

"There is no reason to increase the prime," Hang Seng Bank Chief Executive Raymond Or said. He explained that given the territory's peg to the US dollar, interest-rate trends in America and Hong Kong usually move in sync. "Unless the HIBOR (Hong Kong Interbank Offered Rate) soars to a ridiculous high, there is no need to move the prime," he said.

The three-month HIBOR - the interest that banks have to pay on their borrowed capital - has already risen more than 30 basis points in recent months. Yesterday, it was hovering at the 2.35 percent level.

Despite the climb, ICBC (Asia) Director Stanley Wong said that there is no urgent need for banks to raise the prime rate. "The average interest spread of 3 percent is still healthy," Wong said, adding that banks aren't likely to consider a hike unless the HIBOR spikes.

Interest spread is the difference between the prime lending rate and HIBOR.

Neither banker expects the HIBOR to spike in the near future.

Wong said that US Fed's decision to not change its interest rate is a sign that economic conditions are stabilizing. "The speech this time was less pessimistic, serving as a dose of confidence," Wong said.

Outlook for mortgage interest rates in Hong Kong, on the other hand, remain more ambiguous. Even though a handful of banks have already raised mortgage rates, for some or all customers, large banks continue to keep their lending rate at the same level.

Both HSBC and Standard Chartered Bank said they have no plans to raise their mortgage rates, but ICBC (Asia) said that it may consider increasing rates after observing market trends.

DBS, China Construction Bank (Asia) and Hang Seng Bank are the only local lenders thus far to raise their mortgage rates.

(HK Edition 06/27/2008 page2)