China Financial Daily:China to Strengthen Mortgage Risk Control in Beijing

DB Research

    Chinese banks – Financial deleveraging - Rising funding pressureChina’s domestic liquidity recently tightened notably. The interbank CD ratehas rallied strongly, leaving a narrower or negative spread for some smallerbanks. Also, several small banks reportedly have failed to meet overnight repoobligations lately. While seasonal effects apply, the liquidity tightness wasmainly due to escalating financial deleveraging, in our view. The PBOC haslifted market rates and rolled out stricter MPA rules. We expect liquidity toremain volatile and financial deleveraging to continue, with more “mini hikes”in market rates and tighter new regulations. Joint-stock banks are the mostvulnerable but this is not reflected in share prices. Buy ICBC; sell MSB / CITIC.Hans Fan, CFA - (+852) 22036353