Hibor

What Is HIBOR?

The Hong Kong Interbank Offered Rate (HIBOR) is a benchmark interest rate representing the average interest rate at which banks in Hong Kong lend unsecured Hong Kong Dollar (HKD) funds to one another in the Hong Kong interbank market. It serves as a crucial reference rate within the broader category of financial benchmarks. HIBOR is calculated and published daily for various maturities, ranging from overnight to one year. This rate is fundamental to the pricing of a wide array of financial instruments in Hong Kong, reflecting the prevailing cost of short-term funding for banks and influencing the financial landscape of the region.

History and Origin

HIBOR's origins are rooted in the need for a standardized reference rate for interbank lending within Hong Kong. It was established by the Hong Kong Association of Banks (HKAB) to provide transparency and consistency in the Hong Kong Dollar (HKD) money market. The HKAB, a self-regulatory body representing licensed banks in Hong Kong, is responsible for the daily calculation and dissemination of HIBOR. This benchmark rate reflects the market conditions for interbank lending and has been integral to the financial infrastructure of Hong Kong for decades. The official Hong Kong Dollar Interest Settlement Rates, commonly known as HIBOR, are published daily by the Hong Kong Association of Banks.⁹ The Hong Kong Monetary Authority (HKMA), the region's de facto central bank, also provides daily figures and context for HIBOR on its statistical platforms.

Key Takeaways

• HIBOR is the benchmark interest rate for unsecured Hong Kong Dollar lending between banks in Hong Kong.
• It is calculated daily by the Hong Kong Association of Banks (HKAB) based on submissions from a panel of designated banks.
• The rate is widely used for pricing various financial products, including mortgage loans, syndicated loans, and derivatives.
• HIBOR serves as an indicator of liquidity conditions within the Hong Kong banking system.
• Unlike some other interbank offered rates, HIBOR continues to be recognized as a credible and robust financial benchmark.

Formula and Calculation

HIBOR is not determined by a single formula in the traditional sense, but rather through a robust calculation methodology based on submissions from a panel of banks. The Hong Kong Association of Banks (HKAB) is responsible for this calculation. Each business day, between 12 and 20 banks designated by the HKAB provide their estimated rates for unsecured HKD deposits in the interbank market across various maturities.

The calculation method employs a trimmed mean approach to ensure fairness and reduce the impact of outlier quotes. Specifically, the highest three and lowest three submitted quotations are excluded from the calculation. The remaining submissions are then averaged to arrive at the daily HIBOR fixing. This process aims to reflect a true market consensus for the cost of borrowing for different tenors, from overnight to one year. The methodology for calculating HIBOR involves averaging the middle quotes after discarding the highest and lowest submissions from reference banks.⁸

Interpreting the HIBOR

Interpreting HIBOR provides insights into the liquidity levels and overall monetary conditions within Hong Kong's financial system. A rising HIBOR generally indicates tightening market liquidity, suggesting that banks are finding it more expensive to borrow funds from each other. This can be influenced by factors such as capital outflows or increased demand for funds. Conversely, a falling HIBOR suggests easing liquidity conditions, potentially due to capital inflows or a decrease in interbank borrowing demand.

Financial professionals, businesses, and individuals closely monitor HIBOR as it directly impacts the cost of borrowing for various HKD-denominated financial products. For instance, a persistent rise in HIBOR would translate to higher interest payments for borrowers with HIBOR-linked mortgage loans or corporate loans. Understanding HIBOR's movements is essential for effective risk management and financial planning in the Hong Kong market.

Hypothetical Example

Consider a new homebuyer in Hong Kong who takes out a HKD 5 million mortgage loan with an interest rate tied to the one-month HIBOR plus a fixed margin of 1.5%.

If the one-month HIBOR is currently 2.0%, the effective interest rate on the mortgage would be:
$\text{Effective Interest Rate} = \text{HIBOR} + \text{Margin}$
$\text{Effective Interest Rate} = 2.0\% + 1.5\% = 3.5\%$

The borrower's monthly payments would be calculated based on this 3.5% interest rate.

Now, assume that due to an increase in market liquidity, the one-month HIBOR falls to 1.0% in the following month. The new effective interest rate for the borrower would be:
$\text{Effective Interest Rate} = 1.0\% + 1.5\% = 2.5\%$

This reduction in HIBOR would lead to lower monthly mortgage payments for the homeowner, directly benefiting them from the decline in the benchmark rate. This demonstrates how fluctuations in HIBOR can have a tangible impact on personal finance and corporate obligations tied to this benchmark interest rate.

Practical Applications

HIBOR is a pervasive financial instrument that underpins numerous financial products and market activities in Hong Kong:

• Mortgage Loans: A significant portion of residential mortgage loans in Hong Kong are priced using HIBOR as a reference. Borrowers often choose HIBOR-linked mortgages, where the interest rate adjusts periodically based on HIBOR's movements, plus a fixed spread. Recent data has shown a high proportion of new mortgage loans in Hong Kong are priced with reference to HIBOR.⁷
• Corporate and Syndicated Loans: Businesses seeking financing in Hong Kong frequently obtain loans with interest rates pegged to HIBOR. This allows the interest cost to reflect prevailing market conditions, making it a common choice for short- to medium-term corporate debt.
• Floating-Rate Notes (FRNs): Floating-rate notes issued in Hong Kong Dollars often pay coupons based on HIBOR plus a specified margin, offering investors a variable income stream tied to market rates.
• Derivatives: HIBOR is a key underlying rate for various derivatives, including interest rate swaps and currency swaps, which are used by financial institutions and corporations for hedging and speculative purposes.
• Market Liquidity Indicator: As HIBOR reflects the cost of interbank borrowing, its movements are closely watched by analysts and policymakers as an indicator of liquidity within the Hong Kong banking system. For instance, a decline in the one-month HIBOR below 1% in May 2025 indicated a surge of liquidity in Hong Kong's capital markets, leading to mortgage relief for borrowers.⁶

Limitations and Criticisms

While HIBOR is widely regarded as a robust and credible benchmark in Hong Kong, interbank offered rates in general have faced scrutiny globally due to their reliance on bank submissions rather than purely transactional data. The historical issues surrounding the manipulation of the London Interbank Offered Rate (LIBOR) highlighted the vulnerabilities inherent in such submission-based benchmarks.

However, unlike LIBOR, which underwent a cessation process due to its susceptibility to manipulation and declining underlying transaction volumes, HIBOR has maintained its credibility. The Hong Kong Monetary Authority has explicitly stated there is "no plan to discontinue HIBOR as it remains a credible financial benchmark."⁵ Despite this, the global trend towards alternative reference rates (ARRs) based on actual transactions has led Hong Kong to identify the HKD Overnight Index Average (HONIA) as an alternative reference rate for HIBOR, aligning with international best practices. This proactive approach aims to further strengthen the resilience of Hong Kong's financial markets. The shift away from LIBOR to more robust, transaction-based risk-free rates globally has been a significant undertaking to enhance financial market stability.

HIBOR vs. LIBOR

HIBOR (Hong Kong Interbank Offered Rate) and LIBOR (London Interbank Offered Rate) both served as key benchmark interest rates for interbank lending, but they differed significantly in their scope and regulatory oversight, particularly in recent years.

The primary distinction now lies in their current status. While HIBOR continues to function as the benchmark for Hong Kong Dollar lending, LIBOR has largely been phased out and replaced by alternative risk-free rates like SOFR (Secured Overnight Financing Rate) for USD or SONIA (Sterling Overnight Index Average) for GBP. This transition away from LIBOR marked a global effort to move to more robust, transaction-based benchmarks to enhance financial market stability and integrity. The Bank of England confirmed the complete cessation of all 35 LIBOR settings as of September 30, 2024.

FAQs

What does HIBOR measure?

HIBOR measures the annualized interest rate at which commercial banks in Hong Kong lend unsecured Hong Kong Dollar funds to other banks in the interbank market for specified periods. It reflects the cost of borrowing for financial institutions in Hong Kong.

Who calculates HIBOR?

HIBOR is calculated and published daily by the Hong Kong Association of Banks (HKAB). It is derived from a trimmed average of submissions from a panel of designated banks.⁴

How often does HIBOR change?

HIBOR is fixed and published every business day (excluding Saturdays) at 11:15 a.m. Hong Kong time for various tenors (e.g., overnight, 1-week, 1-month, 3-month, 6-month, 1-year). This means the rate can change daily.³

Is HIBOR going to be discontinued like LIBOR?

No, the Hong Kong Monetary Authority (HKMA) has stated that there are no plans to discontinue HIBOR, as it remains a credible and robust financial benchmark. However, Hong Kong has identified the HKD Overnight Index Average (HONIA) as an alternative reference rate, aligning with the global trend towards more transaction-based benchmarks.²

How does HIBOR affect mortgage rates in Hong Kong?

Many mortgage loans in Hong Kong are HIBOR-linked, meaning their interest rates are set at HIBOR plus a certain margin. When HIBOR rises, the interest payments for these mortgages also increase, and vice versa. This makes HIBOR a significant factor for homeowners' monthly repayments.¹