China banks:SHIBOR picks up faster post PBOC rate lift

SHIBOR rates have been picking up consistently this year, though the pacehas accelerated after PBOC’s rate lift on 16 March 2017 with 1M SHIBORquote up 24bps to touch 4.4% and live interbank rate up 109bps to touch5.9% as of latest. Rates of banks’ 1M CDs also touched 2017 YTD high of4.8%, and well above the 12M average of 3.3%. We see faster rate uptickslikely suggesting an acceleration in the liquidity deleveraging, which mayprelude risk unwinding as the next stage for better systematic efficiency. Thefirst Macro Prudential Assessment (MPA) would be implemented this monthafter its expansion to include wealth management products (WMPs), and thefull impact is yet to be seen.

    We reiterate caution towards CITIC Bank (998 HK), MSB (1988 HK), Bocom(3328 HK) and CMB (3968 HK) – all Reduce-rated – given their: a) relativelyweak liquidity franchise and heavier reliance on interbank funding; b)relatively short liability tenor and more potential pressure on funding cost asliability tenor extends; and c) higher risk profile, both on- and off-balancesheet, and higher vulnerability vs. large banks as risk unwinds.