China: Strong loans reflect shrinking interbank activities - ING

China’s recent money supply data reflect interbank activities among non-bank FIs are moving into RMB loan growth, according to Iris Pang, Economist at ING.

Key Quotes

“As forecast, M2 grew at 9.4%YoY in June, in line with loan growth. RMB new loan in June were CNY1,540bn (INGF: CNY1,500bn; consensus: CNY1,300bn, prior: CNY1,110bn).”

“Although our projections are in line with the data release, we are still surprised by the increase in trust loans of CNY250bn when the average growth in the last two months was CNY164bn. This confirms our analysis that interbank activities related to non-bank FIs are moving to trust loans as well as RMB loans after CBRC announced its inspection exercise on banks on interbank items. The objective of this regulatory exercise is to limit interbank players cross buying products from each other simply to boost profitability, as these funds will not flow into economic activities.”

“This month’s data release also exposes that even aggregate financing does not cover all banking activities and non-bank activities in China.”

“Since we expect CBRC to continue the inspection on interbank and shadow banking activities, the trend of RMB loan growth and other items in aggregate financing, including trust loans, is likely to continue. M2, however, will keep growing at under a 10% rate because banks would like to increase their net interest margin by pushing the loan-deposit ratio higher.”