Ruan Guoheng: The net interest margin of Hong Kong banks is relatively low compared to international levels, and there is limited room for further reduction in P

The Federal Reserve will announce its interest rate decision at 12:00 AM Hong Kong time this Thursday (29th), with the market generally predicting that U.S. interest rates will remain unchanged. In Hong Kong, the Deputy Chief Executive of the Hong Kong Monetary Authority, Yuang Guoheng, believes that there is limited room for banks to further reduce the best lending rate (P).

Yuang Guoheng stated that the current P has returned to 2021 levels, and the net interest margin of Hong Kong retail banks is expected to narrow to 1.47 cents in the first three quarters of 2025, compared to 1.5 cents in the same period of 2024. He described that the net interest margin of Hong Kong banks is relatively low compared to international levels. If Hong Kong further reduces P without a corresponding decrease in deposit rates, it will put additional pressure on the net interest margin and may affect profitability.

He pointed out that as a regulatory body, the Hong Kong Monetary Authority does not want to see the net interest margin of the Hong Kong banking sector too low from a risk management perspective. If HIBOR falls in response to U.S. interest rates, it is expected to have a positive effect on the local economy.

He also mentioned that while credit risks in the mainland have eased somewhat, there are still uncertainties regarding the global macroeconomic environment, geopolitical issues, and interest rate trends. The outside world should not expect that the overall bad debt ratio of Hong Kong banks has peaked; it can be anticipated that the proportion of non-performing loans in Hong Kong is on the rise, with the bad loan rate related to commercial real estate still being challenging