The author is Michael Werner, senior research analyst covering the Chinese and Hong Kong banks at Sanford Bernstein & Co.
China’s July total social financing (excluding bank loans) growth was 85% below the first half monthly average. But new RMB loans, at RMB700 billion, topped market expectations by 9%.
We believe that further de-leveraging of the interbank exposures drove down the total social financing figures. But medium- and long-term loan growth helped provide an offset to the drop of the overall numbers.
In July, banks reported deposit outflows of RMB257 billion as retail deposits saw typical beginning-of-quarter weakness. Year-on-year corporate and fiscal deposits growth decelerated to 14% in June & July from 16% in Mar-May, impacted by foreign capital outflows.
But despite the slowdown in credit growth in June and July, economic data has remained resilient. The Chinese economy even showed signs of a slight uptick, easing some investors’ concerns.
We continue to prefer the large listed-banks to the small banks.
(The article has been edited for clarity)