RMB deposits fall sharply in July by CNY1.98T

Loan growth, meanwhile, was more selective.

July marked a temporary plunge in RMB deposits, as total RMB deposits declined by CNY1.98t MoM in Jul 2014 (+CNY3.8t MoM in Jun 2014).

According to a research note from Maybank Kim Eng, based on the PBOC, bank customers have shifted from deposits to investment in wealth management products (WMPs) and money market funds (CNY1.6t in Jul 2014).

Further, a shift has been noted as well for A-shares, as China brokers’ guaranteed funds increased by CNY0.3t MoM in Jul 2014.

Here’s more from Maybank Kim Eng:

In line with deposits, M2 growth moderated from 14.7% YoY in June 2014 to 13.5% YoY in Jul 2014.

The PBOC maintained a net injection of liquidity into the banking system for the fourth month in a row in Jul 2014 (CNY109b).

Besides, an increase in China’s trade balance (USD47.3b in Jul 2014 vs. USD31.6b in Jun 2014) also helped M2 growth.

With gradual maturity of the WMPs and potential improvement in external trade conditions, we expect RMB deposit growth and M2 growth to recover in Aug-Sep 2014.

More selective loan growth. In line with the decline in RMB deposits, RMB loan growth decelerated to CNY0.4t MoM in Jul 2014.

Key drivers include long-term individual loans (proxy of residential mortgages), long-term corporate loans (proxy of project financing) and discounted bills.

In view of rising NPLs, banks remained cautious on SME loans and micro-finance. The

RMB loan-to-deposit (L/D) ratio rose to 69.9% in Jul 2014 (68.3% in Jun 2014).

We expect continued shift towards less risky loans in 2H14.

Slower rise in shadow bank assets. Total aggregate financing reduced to CNY0.3t in Jul 2014 (CNY2t in Jun 2014), reflecting the decline in trust loans and undiscounted bankers’acceptance.

As expected, the launch of Document 140 should prompt banks to reduce their exposure to risky shadow bank assets in 2H14.