Chinese banks:Nov 2017banking data

Credit and banking asset growth slowed further; we still prefer big banks.

    New loans of Rmb1.12tr and TSF of Rmb1.6tr notably beat consensus for Nov2017, but we do not see this as a turning point for monetary policy. Indeed,adjusting for municipal bonds and equity raising, system credit growth slowedfurther to 14.4% yoy from 14.9% the prior month (Fig. 1). Looking at banks’balance sheets, asset growth fell below 10% yoy (Fig. 6), dragged by shrinkagein interbank funding (Fig. 9). We are likely at most halfway through thefinancial deleveraging process. New regulations on asset management andliquidity risks will be phased in and more rules will probably follow. In a tighterand more coordinated regulatory environment, we still prefer big banks.

    Slowest credit growth since Aug 2015; M2 growth rebounded.

    Adjusted credit growth (including municipal bonds) of 14.4% yoy this monthwas the slowest in the past 27 months. Looking at the breakdown, loangrowth accelerated to 13.3% yoy (vs. 13.0% in Oct), while shadow bankingand corporate bond financing remained muted. Shadow banking components(entrusted loans, trust loans and undiscounted bills) made up only 11% of NovTSF versus 22% in 1H17. This suggests that following a series of tighteningrules, banks are bringing off-BS shadow banking into on-BS. By de-leveringshadow credit and cutting off financing layers, M2 growth actually reboundedfrom a historical low of 8.8% yoy in Oct to 9.1% yoy. We calculate M2/GDPstayed flattish mom at 207% versus a record high of 210% in March.

    Who is borrowing? Corporates levered up while household moderated.

    A breakdown by borrowers suggests that corporates have levered up whilehousehold moderated in November, with their new credit making up 38%/28%of the new system credit (30%/29% in Oct); government borrowing narrowedto 30% of the total new credit. For households, monthly new short-term retailloans normalized to Rmb203bn in November 2017 against an average volumeof Rmb162bn in 10M17. Elsewhere, mortgage loan growth slowed to 23.2%yoy in November (Oct: 24.4%).

    Who is lending? Asset growth decelerated across the board.

    China’s banking assets growth further slowed to 9.4% yoy in Oct (vs. 15.7% in2016). Banks have scaled back interbank borrowing and NCDs due to risingfunding costs. This has led to the unwinding of interbank lending. By lenders,asset growth was mainly dragged down by smaller banks. Total asset growthof joint-stock and city/rural banks (44% of total banking assets) decelerated to10.3% yoy in Oct from 19% in 2016. Meanwhile, the Big Five banks’ (36% oftotal banking assets) asset growth decelerated to 7.2% yoy in Oct (Sept: 8.5%).

    Policy outlook