Chinese banks expected to grow loans faster than deposits

As the 75% LDR ceiling has been abolished.

Most China banks are scheduled to report interim results later this month, but Ping An Bank (PAB) released its results ahead of the crowd on mid-August 2015.

According to a research note from Barclays, PAB's results appear to be in line with Barclays' expectations for overall industry trends.

That is, moderate NIM compression due to intensifying deposit competition and recent benchmark rate cuts.
Also, a relatively mild increase in NPL ratio due to easing monetary policy as well as the local government debt swap program.

Here's more from Barclays:

PAB demonstrated robust revenue growth, strong fee income momentum and clear cost discipline in its 1H15 results.

The bank showed high pricing capabilities (NIM +21bp y/y or +7bp h/h to 2.71% despite of further rate cuts) with its asset quality issue appearing a key operational weakness (NPL balance rose 50% h/h and pushing NPL ratio by 30bp to 1.32%).

Pre-provision operating profit grew by 48% on an annual basis while its net profit was up by 15%, owing to increased credit costs (2.25%, +107bp y/y).

Our expectations for the industry overall: 1) Banks should have the ability to grow loans faster than deposits (given the 75% loan-to-deposit ratio ceiling no longer applies), hence helping mitigate certain NIM pressure.

2) Banks with strong SME and retail/credit card franchises look better positioned to weather a rate deregulation environment. And, 3) asset quality deterioration is likely to be a prolonged process.