Hong Kong banks' RMB deposits up 3.1% to CNY1.1t

Thanks to these two growth drivers.

According to Maybank Kim Eng, total RMB deposits (including CDs issued) grew 3.1% MoM to CNY1.1t in Jan 2014, accounting for 12.5% of total deposits (12% in Dec 2013).

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We believe this was due to continued RMB appreciation and the sharp rise in RMB cross-border trade settlements (+4.8% MoM in Jan 2014).

With increasing acceptance of RMB as an international settlement currency, we forecast total RMB deposits in Hong Kong will exceed CNY1.3t by end-Dec 2014.

Seasonal rise in HKD L/D ratio. Due to CNY seasonal factor, HKD deposits fell 0.3% MoM in Jan 2014. Total loan growth was robust at 3.7% MoM (HKD loan growth: +2.5% MoM) in Jan 2014, reflecting banks’ tendency to
maximize net interest income at the beginning of each year.

Trade finance grew 10.5% MoM in Jan 2014, accounting for ¼ of the loan growth. As such, HKD loan-to-deposit (L/D) ratio rose to 80.3% in Jan 2014 (78.2% in Dec 2013). We forecast loan growth for most Hong Kong-listed banks will be 10-12% YoY in 2014.

Slight decline in HKD funding costs. Despite continued rise in HKD L/D ratio, HKD funding costs fell slightly from 0.39% in Dec 2013 to 0.37% in Jan 2014. Besides, short-term HIBOR remained stable in Jan 2014.

These imply that Hong Kong banks have confidence that the HKD L/D ratio will decline in Feb 2014 after the CNY holidays (e.g. cash held by public will flow back to the banking system as deposits). We expect most Hong Kong listed banks’ NIM will maintain a stable-to-slight-rising trend in 2014.