System deposit balance surged to HK$7tn.
According to Barclays, rising capital inflows after quantitative easing since 4Q08 resulted in rapid system deposit growth.
Here's more from Barclays:
In the two years after Sep 2008, system deposit balance rose by more than HK$1tn to reach HK$7tn, +20%, while the HKMA’s aggregate balance and exchange fund balance rose by HK$650bn to defend the currency peg from capital inflows.
After substantial hot money inflows into Hong Kong, system credit growth picked up substantially in 2010 (+30% y/y), as banks aimed to deploy surplus funds and customers accessed low interest rates.
Corporate loan demand was strongest, especially cross-border lending and trade finance. Corporates took advantage of cheap borrowing rates in Hong Kong, compared to higher onshore borrowing rates in China.
Homeowners and property investors took advantage of attractive mortgage rates (as low as Hibor + 65bps), driving up property prices which rose 25% and resulted in 15% y/y mortgage growth in 2010 .
Very strong credit growth was positive for earnings in 2010, and the local banks we cover recorded an average 16% y/y growth in pre-provision operating profit (PPOP). By late-2011, strong credit growth ultimately resulting in tightness in system liquidity.
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