Hong Kong banks' deposits back on a growth trend

System deposits in July rebounded 1.5%.

According to Barclays, the HKMA’s July monetary statistics showed that loan growth has moderated (+1.4% m/m) and should alleviate concerns over excessive loan growth seen in June. 

Moreover, deposits are back on a growth trend (+1.5% m/m), reversing the contraction in June. Loan-to-deposit ratio remains stable at 71.8%, still close to a record high since 2000.

Here's more from Barclays:

System deposits rebounded

System deposits in July rebounded (+1.5% m/m) reversing the -1.1 m/m decline in June. Deposit growth was led by US$ deposits (+3.7% m/m) while HK$ deposits were relatively flat (+0.3% m/m). R

MB deposits declined slightly by 0.4% to Rmb695bn. We believe the decline was largely driven by easier liquidity conditions in China after the tightness in June. System funding cost (composite interest rate) was steady m/m at 32bps in July.

Moderating loan growth

System loan growth moderated to 1.4% m/m after the sharp 3.3% rise in June. Trade finance slowed to 3.8% m/m (vs 11.5% m/m in June and 54% ytd), which we believe is a result of easier liquidity conditions onshore, the narrowing of RMB/USD interest rate arbitrage opportunities and regulatory crackdown on “fake trade” related loans. Loans for use outside Hong Kong grew by 3.6% m/m, mostly China-related, in our view.

We believe the pace of loan growth in July is more sustainable and likely lifted the regulator's concern over banks' credit and funding risks.

In June, rapid loan growth prompted the HKMA to raise concerns of excessive loan growth with the banks and requested banks to provide the plan for the rest of the year.

System loan-to-deposit ratio remained steady at 71.8% (71.9% in June was a record high since 2000).