INTERVIEW-HSBC says credit will remain tight

By Matt Falloon

RIYADH (Reuters) - Banking conditions are stabilising but credit will remain tight for some time and there may yet be more shocks to the financial system, a top executive at Europe's biggest bank HSBC told Reuters.

HSBC Group Chief Operating Officer David Hodgkinson said action by governments and central banks to help banks through the credit crisis would take time to feed through and reducing interbank lending rates would be "a slow process".

"It is improving but it will be a brave person who thinks there are going to be no more shocks in the system," he said in an interview on Sunday.

"I think it is stabilising. It takes time for confidence and reassurance to really establish themselves and there is no doubt there are still some banks who are deleveraging, which means that credit is likely to be constrained for a period."

The government's multi-billion pound rescue package, along with a guarantee on bank debt issuance and an expansion of the Bank of England's mortgage swap scheme, has helped stem the credit crunch and given banks some breathing space.

But while interbank lending rates have eased, indicating strains in money markets are calming down, they are still well above pre-crisis levels and financial markets remain volatile as fears grow of a severe global economic downturn.

"Libor (London interbank lending rate) really needs people quoting on both sides and lots of participants," Hodgkinson said. "The number of banks participating in the market has reduced."

"Many players don't have the liquidity still to be as active in the market as they were previously -- that is correcting but it's taking time."