Deleveraging helps moderate China banks' growth

Loan growth may moderate by 1-2 ppt in 2018.

China banks are expecting moderation in loan growth of 1-2ppt YoY in 2018 due to the authorities' efforts to engineer deleveraging for the corporate sector, UOB Kay Hian reports.

Here's more form UOB Kay Hian:

There is increased competition for deposits due to tightening of liquidity and moderation in growth for M2. Thus, net interest margin expansion is expected to be muted with higher loan yield partially offset by higher cost of deposits. Fees from wealth management are under significant pressure due to unified regulations on wealth management products and the crackdown on shadow banking.

Implementation of FRS109 on 1 Jan 18 would require one-time transfers within the balance sheets from retained earnings to general provisions, without affecting the profit and loss statements. While asset quality has improved in line with the recovery in exports, banks are still expected to maintain provisions at elevated levels to keep up with the more stringent regulatory requirement for recognition of NPLs. Many banks target to achieve mid single-digit earnings growth for 2018 (2017F: low single-digit), driven by high singledigit growth in net interest income.