Citibank: Reduction in the most favorable interest rates has a neutral to slightly positive impact on the net interest margin of large Hong Kong banks.

Citibank released a research report stating that following the 50 basis points rate cut by the Federal Reserve, Hong Kong banks have successively announced a 25 basis points reduction in the Hong Kong Dollar Prime Rate yesterday (19th). The reduction in the Prime Rate is expected to lead to a corresponding decrease in mortgage rates, thereby supporting mortgage demand and easing the burden of mortgages. The bank expects that the impact of just lowering the Prime Rate on the net interest margin of large Hong Kong banks will be neutral to slightly positive, as the lower asset yield should be offset by the reduction in the cost of financing savings deposits. The bank estimates that with each 25 basis points reduction in the Prime Rate, assuming deposit rates also decrease by 25 basis points, it will widen Hang Seng Bank's net interest margin by 2 basis points. In addition, the bank expects that with each 25 basis points reduction in the Prime Rate, assuming corporate deposit rates adjust by 50% or 100% and individual deposit rates adjust by 25 basis points, it is projected to widen BOC Hong Kong's net interest margin by 0.4 and 1.9 basis points respectively.