Hong Kong banks' system loan dipped as trade finance nosedived

Could the recent RMB depreciation be the one to blame?

According to Barclays, the HKMA’s July monetary statistics showed system loans declining 0.6% m/m led by a sharp drop in trade finance, down 5.2% m/m.

Barclays believes weak trade loan demand was affected by RMB depreciation expectations against the USD/HKD (as implied by forward exchange rates) and negative market sentiment during the market correction.

Here's more from Barclays:

Bank of China (Hong Kong) (2388 HK, OW, PT HK$34) remains our preferred pick among the local Hong Kong banks, as the potential sale of Nanyang Commercial Bank along with its repositioning to become the regional arm of BOC Group are ROE accretive, in our view.

Loan contraction: System loans declined by 0.6% m/m driven by a 5.2% m/m decline in trade finance and 1% m/m fall in loans for use in Hong Kong. We believe this was due to lower China-related loan demand in US$/HK$ as the RMB depreciated and China’s onshore benchmark rates was reduced. Loans for use outside HK rose by 0.2% m/m.

System deposits stable, RMB deposits flat m/m: System deposits in July were largely flat (-0.2% m/m) as a decline in HKD deposits (-0.8% m/m) was offset by growth in US$ deposits (+0.3% m/m), RMB deposits (+0.1% m/m to RMB994bn, equivalent to 11.8% of system deposits) and other foreign currency deposits (+1.8% m/m). The positive deposit mix shift trend continued in July as time deposits contracted by 1.2% while current and savings deposits rose by 0.7%m/m and accounted for 55.4% of system deposits. System loan to deposit ratio stood at 72.4% (from 72.7% in June).