China banks are starting to show signs of liquidity relaxation

June M2 growth went beyond consensus forecast.

M2 growth rebounded further from 13.4% YoY in May 2014 to 14.7% YoY in June 2014. This was well above the Bloomberg consensus forecast of 13.6%.

According to a research note from Maybank Kim Eng, this should be due to the reduction in RRR for selected banks (with a focus on agriculture-related loans and micro-finance).

Further, this should also be due to net injection of CNY181b liquidity into the banking system by the PBOC in June 2014 as well as the seasonal repatriation of liquidity from wealth-management products to customer deposits of banks.

Maybank Kim Eng also noted that the PBOC has reduced the scale of liquidity withdrawal from the banking system over the past two weeks.

It expects M2 growth to remain above 13% in July 2014. Also, Maybank Kim Eng noted that the decline in return of money market funds should help revive deposit growth of banks in 3Q14.