China banks:More shift to capital markets

December TSF beats expectations on non-bank channels.

China’s TSF has a strong end to 2014. A total of Rmb1.7t was added in December, up 35% YoY and above consensus of Rmb1.2t. While Rmb loan missed expectations, non-bank channels staged a rebound, led by entrusted loan, trust loan and equity issue. For the full year, bond and equity financing posted the biggest increase. The recovery in capital markets will lead to more shift in fundraising. This also paves the way for banks to start ABS.

December uptick

TSF added Rmb1.7t in December, up 35% YoY and above consensus of Rmb1.2t.

The increase was led by trust loan (+89% YoY), entrusted loan (+68%), corporate bond (+327%), equity (+78%) and a reversal of decline in banker acceptance.

Rmb loan gained Rmb697b. Though missing consensus of Rmb880bn, it’s up 45% YoY.

Shift in fundraising

For the full year 2014, total increase in TSF slipped 5% YoY, a result of macro slowdown.

Bankers’ acceptance posted a net decline while trust loans had a drop of 72%. On the other hand, bond issue rose 34% and equity even more, 96%.

New Rmb loan, at Rmb9.8t, was only 10% higher. There’s a clear shift in fundraising towards more capital markets and away from banks.

Towards capital markets

Banks are getting more challenged in lending because of LDR limit, deposit competition, and NPL. Total deposit rose by Rmb10.3t, less than the levels in 2013 and 2012 and only slightly above 2011’s.

The recovery in capital markets is likely to offer them some breathing space.

An announcement was made to allow them to start ABS (according to news, 27 joint stock and city commercial banks are on the list), easing LDR and capital.

More disintermediation

The next question is if banks will make use of the bull run to recapitalise. That is probably subject to as much political as commercial considerations.

We don’t have an answer, not until we get any clarity on NPL and their capital position. Within Chinese financials, we are OW banks vs insurers on valuation.

But one thing for sure, the increase in investor risk appetite will facilitate disintermediation and the change in TSF.