Hong Kong Interbank Offered Rate (HIBOR) The Hong Kong Interbank Offered Rate (HIBOR) is the benchmark interest rate, quoted in Hong Kong dollars, that banks use when lending to one another in Hong Kong’s interbank market. It serves as a reference for a wide range of HKD-denominated financial products, including loans, mortgages, bonds, derivatives, and floating-rate notes. How HIBOR is determined
* Banks borrow and lend in the interbank market to manage short-term liquidity needs. Loan maturities can range from overnight to one year.
* A panel of banks contributes daily rate quotes. The highest three and lowest three submissions are discarded; the remaining quotes are averaged to produce the published HIBOR rates.
* Multiple tenors are published (e.g., overnight, 1 week, 1 month, 3 months, 1 year), and the published rates are used as reference points for contracts and pricing.
Uses and examples
* Benchmark for pricing HKD debt instruments: corporate and government bonds, mortgages, and derivatives such as interest-rate swaps.
* Floating-rate instruments reset their coupon based on a specified HIBOR tenor plus a spread. For example:
* A floating-rate note paying one-year HIBOR + 35 basis points would have its coupon reset annually. If one-year HIBOR is 4.00%, the coupon becomes 4.35% for that year.
* Credit spreads over HIBOR reflect the issuer’s perceived creditworthiness.
Criticisms and transition to alternative benchmarks
* Reliability concerns: Interbank offered rates that rely on submitted quotes (rather than transactional data) have been criticized for potential manipulation and volatility.
* Historical scrutiny: Periods of market stress and investigations into rate-setting practices have prompted scrutiny of HIBOR and other interbank benchmarks.
* Move toward transaction-based overnight rates: Financial markets have been transitioning toward alternative benchmarks that are based on actual transactions. For Hong Kong, this has led to adoption of the Hong Kong Overnight Index Average (HONIA), an overnight, transaction-based rate. Globally, similar moves have produced benchmarks such as SONIA and SOFR.
* The transition reflects a preference for benchmarks grounded in observable market activity to improve transparency and resilience.
Key takeaways
* HIBOR has been a central HKD reference rate for interbank lending and pricing many financial products.
* It is calculated from submitted bank quotes after trimming outliers, producing daily rates across multiple tenors.
* Concerns about quote-based benchmarks have driven a shift toward transaction-based overnight rates (e.g., HONIA), improving transparency and reducing manipulation risk.
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