The Hong Kong Monetary Authority (HKMA) has announced a decrease in the composite interest rate at the end of April 2024. The composite interest rate, which gauges the average cost of funds of banks, declined by 8 basis points to 2.65% at the end of April 2024, down from 2.73% at the end of March 2024.
Impact on Funding Cost for Deposits
The dip in the composite interest rate is primarily attributed to a decrease in the weighted funding cost for deposits noted throughout the month. The composite interest rate is a weighted average interest rate of all Hong Kong dollar interest-rate-sensitive liabilities. This includes deposits from customers, amounts owed to banks, negotiable certificates of deposit, and other debt instruments. It also includes other liabilities which do not formally pay interest but whose values are sensitive to interest rate movements, such as Hong Kong dollar non-interest-bearing demand deposits.
Historical Data on Composite Interest Rate
The historical data of the composite interest rate, dating back to the end of the fourth quarter of 2003 up to the end of April 2024, is available on the Monthly Statistical Bulletin on the HKMA website. It should be noted that the composite interest rate only represents average interest expenses and does not cover other costs involved in loan making such as operating costs, credit cost, and hedging cost.
Since June 2019, the calculation of the composite interest rate and the weighted deposit rate has been based on the new local ‘Interest rate risk in the banking book’ (IRRBB) framework. As a result, these figures may not be strictly comparable with those from previous months.
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