2 reasons why Hong Kong banks' loan growth will decelerate in FY13

Loose monetary conditions in China is one reason.

Barclays expects a deceleration of loan growth in FY13 due to: 1) loose monetary conditions in China resulting in less excess loan demand flowing to Hong Kong; and

2) slowing mortgage growth affected by government’s property cooling measures. "We forecast loan growth of 6% and 5% for 2013E and 2014E, respectively."

Here's more from Barclays:

Hong Kong’s total system loan growth rose by 10% in 2012 compared with 20% in 2011. The slowdown was largely driven by: 1) domestic commercial loans due to the economic slowdown, 2) trade finance, and 3) loans for use outside of Hong Kong as monetary conditions were looser and interest rates being lower in China (post rate cuts in June/July), resulting in less loan demand in Hong Kong from mainland-related corporates.

There is an inverse relationship between credit growth in Hong Kong and in China, as evident in Figure 15 (-44% correlation between Hong Kong and China loan growth over the last 10 years). While bank loan growth is largely controlled by the regulator, total social financing has reached a record high of RMB2.54trn in the month of January 2013.

 Our China banks analyst, May Yan, believes that the government will likely keep liquidity abundant to ensure a smooth leadership transition. Therefore, we expect growth in system trade finance and loans for use outside of Hong Kong to remain largely stable or mildly lower going forward. In 2012, trade finance loans rose by 10% (vs 27% in 2011) while loans for use outside of Hong Kong rose by 17% (vs 42% in 2011).