Hong Kong banks' deposit, loan growth go sluggish in November

After a strong October performance.

The HKMA’s November monetary statistics showed slow growth in both loans and deposits after strong growth in October.

According to a research note from Barclays, system deposits increased 0.4% m/m (October was at 1.2%) while system loans were up 0.1% m/m (October was at 1.0%).

The system loan-to-deposit ratio dropped slightly to 72.3% from 72.5%. Hang Seng Bank is Barclays' top pick among the Hong Kong banks given it is most leveraged to rising interest rates.

Further, it also has a strong deposit franchise and solid risk management record.

Here's more from Barclays:

System deposits grew moderately; RMB deposits showed a very strong growth m/m: System deposits in November increased 0.4% m/m after a strong growth in October (+1.2% m/m).

The strong growth in both US dollars deposits (+1.7% m/m) and RMB deposits (+3.2% m/m) were offset by the contraction of both HKD deposits (-0.9% m/m) and other foreign currency (-0.3%).

The strong RMB deposits growth should be due to the removal of RMB $20,000 daily currency-conversion limit by HKMA in mid-November, in our view. RMB deposits climbed up to RMB 974bn, accounting for 12.2% of system deposits.

System loan slowed almost muted growth: System loans only grew 0.1% m/m in November (October: +1.0%).

Loans for use outside Hong Kong were up 1.4% m/m, but the growth was offset by both loans for use trade finance loans (-1.0% m/m) and loans for use in Hong Kong (-0.4% m/m).

The system loan to deposit ratio decreased 0.2ppt m/m to 72.3% while the Hong Kong dollar LDR remained flat at 82.5%.

Funding costs declined slightly m/m: Composite interest rate, which is a measure of the system funding costs, dropped 1bp m/m to 38bp.

We noticed intensified deposit competitions for RMB, particularly after the removal of RMB daily currency-conversion limit. However, RMB (against HKD) depreciated almost 1% in December 2014 and depositors may get more reluctant to keep RMB deposits for a long tenor.

Therefore, we expect banks will continue to attract more RMB deposit by offering a relatively high rate.

Mortgage drawn down declined: The November mortgage survey showed that new mortgage loans drawn down dropped 9.6% m/m to HK$20.8bn.

Outstanding mortgages increased 1.0% m/m as new mortgage loans booked offset principal repayments. Hibor-based mortgage accounted for 83.9% of new mortgage approved.

Hibor-based mortgages will still dominate the market as interbank rates remain largely stable, in our view. The average system mortgage rate was largely stable at 2.24% (October: 2.23%) based on our calculations.