3 biggest reasons behind Chinese banks' TSF drop in July

It fell to RMB 809b.

According to Barclays Research, Chinese TSF softened further to RMB 809bn in July from RMB 1.04tn in June and RMB 1.19tn in May, mainly driven by three factors.

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1) a large drop in FX loans (-RMB 116bn in July vs. +RMB 13bn in June), which could be a result of crackdown on fake trade/ FX speculation and new regulation on 75% LDR requirement on foreign currency lending business;

2) a decline in bank acceptance (-RMB 178bn in July vs. –RMB 263bn in June), which, we believe, could be due to the regulatory tightening on banks’ discounted bill business and interbank rate spike; and

3) softer corporate bonds (+RMB 46bn in July vs. +RMB 61bn in June), which could be attributable to recent tightening of bond market, for example winding down of class C accounts, and interbank interest rate spike in late June, resulting higher issuing cost of corporate bonds.

However, entrusted loans (+RMB 193bn in July vs. +RMB 197bn in June) and trust loans (+RMB 107bn in July vs. RMB 113bn in June) remained stable.

TSF in 7M13 reached RMB 10.95n (vs. RMB 8.83tn in 7M12). We expect TSF to continue its weakening trend in 2H, as a result of interbank liquidity tightness and the government’s focus on improving efficiency of existing TSF stock.

Seasonal deposit drop in July post strong quarter-end.