Hong Kong’s biggest banks find themselves in a vice as they cut rates for the first time in 11 years during city’s recession

Hong Kong’s three largest banks are lowering their prime rates for the first time in 11 years to support local businesses. The cuts are likely to renew pressure on their margins at an awkward time, as the city’s economy shrank deeper than expected and slipped into its first technical recession in a decade.

HSBC, Standard Chartered Bank and Bank of China (Hong Kong), the city’s three currency issuers, will all cut their best lending rate by 12.5 basis points, taking their cues from a quarter-point cut in base lending rate by the local monetary authority.

The best rate at HSBC and Bank of China will stand at 5 per cent, while the rate at Standard Chartered will drop to 5.25 per cent, according to announcements on Thursday. Savings rate on US dollar and local currency deposits will be slashed to 0.001 per cent, putting the city a whisker’s width from zero interest rate.

That leaves little room for any of the big banks to further ease rates without hurting their books in one of their better-performing markets, analysts said. While Hong Kong and Greater China provide the biggest source of income, growth in the region has tapered amid the onslaught of US-China trade war. China’s economy grew at the slowest pace on record last quarter, while Hong Kong has slipped into a technical recession amid anti-government protests.

“The best lending rate has never fallen below 5 per cent, as banks have to maintain a margin spread with their savings rate,” said Kenny Ng Lai-yin, an equity strategist at Everbright Sun Hung Kai. In addition, traditional lenders will face heightened competition in the coming months from eight virtual banks approved by the authorities, he said.