Both loans and deposits saw robust growth in January, but the strengthwas not homogenous throughout: trade loans were flat, Rmb outflowspersisted, and Rmb rates (both onshore and offshore) and HK$ Hiborremain elevated. In our view, 2017 will remain a challenging year for theHK banks. Reiterate our Neutral stance on the sector; BOCHK (O-PF)remains our preferred pick.
Strongest start to the year since 2014
System loan balances grew a robust 1.9% MoM in Jan (Dec: 1.6%). This is thestrongest start to the year since 2014.
Demand was driven by non-trade loans, both for use in HK and outside of HK. Bycurrency, the main growth driver were FCY loans, although HK$ loan balancesexpanded as well. Trade balances were broadly flat.
Rmb deposits in HK continue to shrink
The system saw seasonally strong growth in deposits, +1.4% MoM (Dec: -0.3%).
The increase was driven by time deposits inflow, in HK$, US$ and FCY, as well asHK$ savings. This was partially offset by outflow in HK$ demand deposits.
Rmb deposits declined 4.4% in Rmb terms (-3.2% in HK$ terms). CASA was themain source of outflows, but time deposits declined as well. Compared with thepeak in 2014, Rmb deposits in HK are down 48% in Rmb terms (-53% in HK$).
HKMA’s composite interest rate (weighted-average interest rate of all Hong Kongdollar interest-bearing liabilities) inched up to 1bps MoM to 0.32%.
qLiquidity in offshore RMB tightened noticeably in late Dec before peaking in earlyJan. Since then, it has eased materially. The Dec 16/Jan 17 spike was similar to theJan 16 squeeze.
The three-month HKD HIBOR’s has eased from the peak in Jan ’17, but remainselevated at 94bps.
HK$ LDR eased from 77.1% in Dec to 76.2%. FCY LDR rose from 59.9% to 61.4%and system LDR stepped up from 68.4% to 68.8%.
Reiterate Neutral stance
Overall, the outlook remains challenging, in our view.
Key pressures include asset yield competition and muted loan demand.
BOCHK (O-PF) remains our preferred pick; BEA (SELL) is least preferred.
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