China Banks Apr 2014: Slower trust loan growth

What’s New。

    Higher M2 growth; lower RMB deposits. M2 growth rebounded to13.2% YoY in Apr 2014 (+12.1% YoY in Mar 2014). This should be dueto: (i) an increase in China’s trade surplus (+USD18.5b in Apr 2014vs. USD7.7b in Mar 2014); and (ii) net injection of CNY1b liquidityinto the banking system by the PBOC. To avoid liquidity shortage inJun 2014, we expect moderate withdrawal of liquidity by the PBOCin the near term. RMB deposits fell by CNY655b MoM in Apr 2014,probably due to the shift towards the banks’ wealth managementproducts and the competition for internet deposits by Tencent.

    Growing long-term loans. RMB loan growth remained healthy atCNY775b in Apr 2014 (CNY1.1t in Mar 2014). If similar growth ismaintained in May-Jun 2014, we estimate the sector loan growthwill be CNY8.8t for 2014 (CNY8.9t for 2013). Banks continued toshift towards high-yield long-term individual and corporate loans(+CNY190b MoM and +CNY323b MoM). The softening in SHIBORhelped revive the bill finance business in Apr 2014. The RMB loanto-deposit (L/D) ratio rose to 69.8% in Apr 2014 (68.7% in Mar2014). We expect stable-to-rising NIM for H-share banks in 2014.

    Further decline in trust loan growth. Total aggregate financingshrank to CNY1.6t in Apr 2014 (CNY2.1t in Mar 2014), partly due toslower growth in trust loans (the 4th month in a row). Ease inSHIBOR helped recover the issue of corporate bonds (CNY366b inApr 2014). To avoid a sharp rise in risk-weighted assets, H-sharebanks should moderate growth in shadow bank assets in 2014.

    What’s Our View。

    Maintain OVERWEIGHT. We see a 6-18% EPS CAGR for H-sharebanks in 2013-2016 under our conservative assumption on NPLs andprovisions. Dividend pay-outs should be sustainable in 2014-2016.