Composite Interest Rate : End of October 2006

Press Releases

17 Nov 2006

Composite Interest Rate : End of October 2006

The Hong Kong Monetary Authority (HKMA) announced today (Friday) the composite interest rate at the end of October 2006.1

The composite interest rate, which reflects the average cost of funds of banks, declined slightly to 3.03% at the end of October 2006, from 3.06% at the end of September 2006 (see Chart 1 in the Annex). This followed an increase of one basis point in September 2006. The three basis-point reduction in the average cost of funds in October was attributable to the fall in interbank rates (see Chart 2 in the Annex).2 Since the commencement of the current up-cycle of US interest rates from the middle of 2004, the composite interest rate has increased by 279 basis points, compared with the upward adjustments of between 300 basis points and 325 basis points in the best lending rates of banks up to the end of October 2006.

"The average cost of funds has been steady around the current level since the end of March 2006. This reflects that liquidity in the banking system has remained ample, with the prospects of a number of scheduled initial public offerings continuing to attract funds to stay in Hong Kong," said Mr Peter Pang, Deputy Chief Executive of the HKMA.

The historical data of the composite interest rate from the end of the fourth quarter of 2003 to the end of October 2006 are available in the Monthly Statistical Bulletin on the HKMA website (www.hkma.gov.hk). The next data release is scheduled for 19 December 2006 and will provide the composite interest rate at the end of November 2006.

For further enquiries, please contact:
Sara Yip, Manager (Press), at 2878 8246 or
Ying-ying Cheng, Manager (Press), at 2878 1687

1 The composite interest rate is a weighted average interest rate of all Hong Kong dollar interest bearing liabilities, which include deposits from customers, amounts due to banks, negotiable certificates of deposit and other debt instruments, and Hong Kong dollar non-interest bearing demand deposits on the books of banks. Data from retail banks, which account for about 90% of the total customers' deposits in the banking sector, are used in the calculation. It should be noted that the composite interest rate represents only average interest expenses. There are various other costs involved in the making of a loan, such as operating costs (e.g. staff and rental expenses), credit cost and hedging cost, which are not covered by the composite interest rate.

2 During October 2006, HIBORs rose for funds with maturity of one week or less by 5 basis points, while that for funds with maturity over one week dropped by 11 to 29 basis points. Despite the initial public offering (IPO) of the Industrial and Commercial Bank of China, which tied up funds of a record HK$416 billion, the HIBORs were relatively stable during and after the IPO period.

Hong Kong Monetary Authority
17 November 2006

Annex

Chart 1

Chart 1
*End-of-period figures.

Chart 2

Chart 2
*End-of-period figures.

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Last revision date : 17 November 2006