Hong Kong banks' system deposits up 2.9% in January

Thanks to the 3.6% growth in HK$ deposits.

According to Barclays, the HKMA's January monetary statistics again showed strong HK$ deposit growth (+3.6%m/m), reflecting increasingly abundant liquidity conditions.

Bank margins in 2H12 benefited from falling funding costs especially after strong capital inflows into Hong Kong post QE3. However, going into FY13E, Barclays expects a gradual fall in loan-to-deposit ratios and renewed loan pricing competition to limit further margin upside.

Here's more from Barclays:

Abundant liquidity: In January 2013, system deposits rose by 2.9% m/m, led by strong growth in HK$ deposits +3.6% m/m, as capital inflows into Hong Kong continued post quantitative easing in the US.

Offshore RMB deposit balance rose by 3.5% m/m to reach RMB624bn, as the CNH/USD exchange rate remained relatively stable. We believe the stable RMB deposit pool is why the large banks were able to lower CNH time deposit rates from 3%+ in 4Q12 to 60-70bps currently.

Slower growth in China-related lending: System loans grew 2.1% m/m, lagging deposit growth. Both the system LDR and HK$ LDR trended lower. Loans for use outside HK (of which a large portion is China-related) was particularly weak, only rising by 1.2% m/m in January (a slowdown from 17% in 2012 and 43% in 2011 y/y).

We believe loose monetary conditions in China in January (record total social financing) resulted in lower demand for loans in Hong Kong from Mainland-related companies. Hong Kong and China loan growth has historically been inversely correlated. Trade finance rose by 6% m/m, recovering from a -7.7% q/q contraction in 4Q12.