What Is the Hong Kong In🦩terba🍎nk Offered Rate (HIBOR)?

The Hong Kong Interbank Offered Rate, known by its abbreviation HIBOR, is the benchmark interest rate, stated in Hong Kong dollars, for lending between banks within the Hong Kong market. The HIBOR is a 澳洲幸运5开奖号码历史查询:reference rate for lenders and borrowers that participate directly or indirectly in the Asian economy. As of December 2020, plans were in place to transition away from HIBOR to the Hong Kong Overnight Index Average (HONIA).

Understanding the Hong Kong Int꧅erbank Offered Rate (HIBOR)

The banking industry uses an interbank market for transferring funds and currency, and for managing 澳洲幸运5开奖号码历史查询:liquidity. If a Hong Kong bank is nearing the point at which withdrawals are close to depleting short-term cash reserves, that bank will go into the Hong Kong interbank market and borrow money at the Hong Kong Interbank Offered Rate (HIBOR). The terms of the loans vary from overnight to one year. The U.K. version, the 澳洲幸运5开奖号码历史查询:London Interbank Offered Rate (LIBOR), is similar to the HIBOR. 

The rate is released each day at 11:00 a.m. local time. It is derived from the contributed quotes of 20 banks determined by the Hong Kong Association of Banks (HKAB). The HKAB acts similarly to a 澳洲幸运5开奖号码历史查询:central bank for Hong Kong. The highest three and the lowest three contributed values are discarded leaving the remaining 14꧒ contr✱ibutions in the calculation.

HIBOR's primary function is to serve as the benchmark reference rate in the Asian markets for debt instruments. This function assists government and 澳洲幸运5开奖号码历史查询:corporate bonds, mortgages, and 澳洲幸运5开奖号码历史查询:derivatives, such as currency and interest rate swaps, among many other financial products. For example, an 澳洲幸运5开奖号码历史查询:interest rate swap involving two counterparties with good🍰 credit ratings, both of which have bonds issued in Hong Kong dollars, will likely be quoted in HIBOR plus a given percentage.

In another example, a Hong Kong dollar-denominated 澳洲幸运5开奖号码历史查询:floating-rate note (FRN), or floater, which pays coupons based on HIBOR plus a margin of 35 basis points (0.35%) annually. In this case, the HIBOR rate used is the one-year HIBOR plus a 35 basis point spread. Every year, the 澳洲幸运5开奖号码历史查询:coupon rate is reset to ♏match the current Honk Kong dollar one-year HIBOR, plus the predetermined sprea꧟d.

If, for instance, the one-year HIBOR is 4% at the start of the year, the bond will return 4.35% of its 澳洲幸运5开奖号码历史查询:par value at&nbs⛎p;year's end. The spread usually increases or decreases depending on the creditworthiness of the institution issuing the debt.

Criticism of HIBOR

Since the Asian currency crisis in 1997, concerns over 澳洲幸运5开奖号码历史查询:volatility and even liquidity grew to a point where HIBOR's value as a 澳洲幸运5开奖号码历史查询:benchmark is questioned. Even LIBOR, which is a global benchmark, is under fire, especially since the 2012 LIBOR fixing scandal. As of December 2020, plans were in place to phase out the LIBOR system by 2023 and replace it with other benchmarks, such as the 澳洲幸运5开奖号码历史查询:Sterling Overnight Index Average (SONIA). SONIA is based on actual bids and offers from the contributing banks and not indicated levels. The latter are subject to ma𒁃nipulation if the contributing bank wants to hide or enhance its capital position.

Indeed, in 2013, the HIBOR market had its scandal when the city widened its investigation into possible manipulation of this key interest rate. The HIBOR fixing mechanism was eventually ruled to be sound, but with similar problems surfacing in other 澳洲幸运5开奖号码历史查询:interbank markets, the tr♐end towards finding replacements is moving forward.

The replacement push centers on LIBOR since it is the globally recognized standard. The U.S. 澳洲幸运5开奖号码历史查询:Federal Reserve introduced the 澳洲幸运5开奖号码历史查询:secured overnight financing rate (SOFR), a new reference rate created in cooperation with the U.Sꦜ. Treasury Department’✅s Office of Financial Research.