Hong Kong banks starting to enforce disciplined loan growth

Following Stable Funding requirement introduction.

In line with sluggish deposit growth, total loans also stayed flat in Aug 2014 on a MoM basis (+14.0% YoY in 2014).

According to a research note from Maybank Kim Eng, following the introduction of Stable Funding Requirement (i.e. authorized institutions with loan growth exceeding 20% YoY are required to maintain specific level of stable funds), Hong Kong banks have maintained disciplined loan growth.

As such, total loan-to-deposit ratio (LDR) and HKD LDR remained healthy at 72.5% and 77.6% in Aug 2014.

Here’s more from Maybank Kim Eng:

In terms of loan mix, trade finance fell 0.6% MoM in Aug 2014 (+5.4% YoY vs. +9.6% YoY in

Jul 2014).

Offshore loans also maintained a moderate growth of 1.0% MoM (+15.6% YoY) in Aug 2014. This implies that banks remained cautious in growing the more risky direct China SME loans. Rather, residential mortgages grew 0.7% MoM (+5.2% YoY) in Aug 2014, mainly driven by primary market activities.

We expect loan growth of most HK-listed banks will be 9-12% YoY in 2014.