Hong Kong loans grew 3.6% m/m in March

Thanks to IPO activity.

The HKMA’s March monetary statistics showed strong growth in both loans and deposits, which were up 3.6% m/m and 2.5% m/m respectively.

According to a research note from Barclays, excluding IPO-related loans, which straddled the end of March, loan growth in March would have been 0.8% m/m.

The report also noted that the RMB deposits balance fell 2.2% m/m to Rmb952bn.

Here's more from Barclays:

Loan growth distorted by IPO activity: System loans grew 3.6% m/m, driven by loans for use inside Hong Kong (+5.6% m/m) and loans for use outside Hong Kong (+1.0%) but partly offset by a fall in trade finance (-2.8% m/m). IPO loans that straddled end-March were about HK$200bn. Excluding IPO-related loans, system loan growth in March would have been 0.8% m/m. By sector, non-bank financial loans (+39.3% q/q) and other commercial loans (+7.2% q/q) were the key drivers for the loan growth in 1Q.

Strong HKD deposit growth offset deposit contraction in other currencies: System deposits in March increased by 2.5% m/m, led by strong growth in HKD deposits, which rose 6.8% m/m, a rebound from the 1% m/m decline in February. RMB deposits continued to fall, down 2.2% m/m to Rmb952bn, which we believe is due to RMB currency weakness for which forward exchange rates currently imply a 2.8% depreciation of the RMB relative to the USD over the next 12 months. USD deposits dropped 1.7% m/m. The system loan to deposit ratio rose to 73.3% (from 72.5% in February).

Funding cost declined: The composite interest rate, which is a measure of the system funding costs, declined by 3bp m/m to 33bp, which believe could be as a result of more liquidity in the system. We believe funding costs could further trend lower after the HKMA injected liquidity into the system to defend the HKD/USD peg, evidenced by the HK$71bn increase in Hong Kong’s Aggregate Balance over the past three weeks.

Mortgage drawdown rose: The March mortgage survey showed that mortgage loans approved in March 2015 increased by 5.3% m/m to HK$28.0bn. New mortgage loans drawn was up 82% m/m to HK$29bn. Outstanding mortgages increased 1.4% m/m as new mortgage loans booked offset principal repayments. Hibor-based mortgage accounted for 85.5% of new mortgage approved. The average system mortgage rate was largely stable at 2.25% based on our calculations. We expect mortgage growth to slow further after the HKMA tightened mortgage lending rules further by lowering LTV and DSR on 27 March 2015.