6 big-time impacts on Hong Kong if US interest rates rise

Will margins increase too?

Barclays said in a report that they expect the following impacts whenever US interest rates do rise:

• Margins to increase: Banks’ net interest income and margins should rise on wider loan-to-deposit spreads and higher returns on surplus funds, in our view.

• Liquidity outflows: Liquidity/capital inflows into Hong Kong since the financial crisis in 2008 may reverse, driving system liquidity tighter and deposit costs higher.

• Credit growth: Credit growth could be strong as the US and global economy recovers although this may be offset by weaker loan demand as borrowing costs rise.

• Asset quality normalises: Currently record-low credit cost and non-performing loan ratios may move in line with rising borrowing costs for corporates and households. 

• Property prices: The liquidity-driven property price rally may correct, resulting in revaluation losses on investment properties as well as slower commercial and residential loan growth.

• RMB business: As the interest rate differential closes between the HKD and RMB, CNH asset deployment may rise, but loan demand by Mainland companies may fall if Hong Kong is no longer a cheaper funding centre relative to the Mainland.