HONG KONG (Bloomberg) — HSBC Holdings Plc's Hong Kong unit cut its best lending rate for the first time in two years to spur borrowing because the banking system is awash with funds.The world's third-biggest bank by market value cut its best lending rate in Hong Kong by 25 basis points with effect from tomorrow to 7.75 percent, HSBC said in a statement. A basis point is 0.01 of a percentage point. Bank of East Asia Ltd. also announced a 25 basis point cut in rates.

"The banks are facing pressure in downward adjusting deposit rates given the high level of funds flowing into the banking system caused by IPOS and other investment opportunities which have driven the interbank rate to a consistently low level in the past few months," said Margaret Leung, general manager and global co-head of commercial banking based in Hong Kong.

Hong Kong banks are flush with cash as investors park their funds in deposits and money flows into the territory because of initial public offerings. Last month, Industrial & Commercial Bank of China Ltd. raised $19.1 billion in the world's biggest public offering in Hong Kong and Shanghai.

Hong Kong banks have only risen their best lending rate nine times since June 2004, while the Hong Kong Monetary Authority has risen its base lending rate 17 times — the same as the US Federal Reserve. The Hong Kong dollar is pegged to the US dollar, which means Hong Kong usually follows any change in US rates.

HSBC said it will also cut its deposit rate by a quarter percentage point.

The last time HSBC changed its best lending rate was March 30 when it raised it by 25 basis points.