Hong Kong banks see strongest start to the year since 2014: CLSA

But the strength was not homogenous throughout.

According to CLSA, both loans and deposits saw robust growth in January, but the strength was not homogenous throughout: trade loans were flat, Rmb outflows persisted, and Rmb rates (both onshore and offshore) and HK$ Hibor remain elevated.

"In our view, 2017 will remain a challenging year for the HK banks."

Here's more from CLSA:

Strongest start to the year since 2014

• System loan balances grew a robust 1.9% MoM in Jan (Dec: 1.6%). This is the strongest start to the year since 2014.
• Demand was driven by non-trade loans, both for use in HK and outside of HK. By currency, the main growth driver were FCY loans, although HK$ loan balances expanded as well. Trade balances were broadly flat.

Rmb deposits in HK continue to shrink

• The system saw seasonally strong growth in deposits, +1.4% MoM (Dec: -0.3%).
• The increase was driven by time deposits inflow, in HK$, US$ and FCY, as well as HK$ savings. This was partially offset by outflow in HK$ demand deposits.
• Rmb deposits declined 4.4% in Rmb terms (-3.2% in HK$ terms). CASA was the main source of outflows, but time deposits declined as well. Compared with the peak in 2014, Rmb deposits in HK are down 48% in Rmb terms (-53% in HK$). q HKMA’s composite interest rate (weighted-average interest rate of all Hong Kong dollar interest-bearing liabilities) inched up to 1bps MoM to 0.32%.
• Liquidity in offshore RMB tightened noticeably in late Dec before peaking in early Jan. Since then, it has eased materially. The Dec 16/Jan 17 spike was similar to the Jan 16 squeeze.
• The three-month HKD HIBOR’s has eased from the peak in Jan ’17, but remains elevated at 94bps.
• HK$ LDR eased from 77.1% in Dec to 76.2%. FCY LDR rose from 59.9% to 61.4% and system LDR stepped up from 68.4% to 68.8%.