The Industrial and Commercial Bank of China (Asia) Limited reported today that it had total assets of HK$849.1 billion as of June 30, 2017, of which HK$483.1 billion were deposits from customers. The bank generated HK$9.7 billion in interest income and paid HK$5.2 billion in interest expense during the six months ended June 30, 2017. Three issues stand out for the period covered.
First, the bank increased its total exposure in Mainland China to HK$387.1 billion, up 7.7% since December 31, 2016. This is an annualized increase of 15.9%. On-balance-sheet exposure accounted for most of that, at HK$325.0 billion, and increased 7.3% over the same period. Contingent liabilities, growing 10.7%, were worth HK$60.7 billion. The value of foreign exchange and derivative contracts, valued at only HK$1.3 billion, declined 18.1%. Although these growth rates seem impressive, they are just barely keeping up with the overall increase in corporate demand deposits in China.
Second, the bank increased exposure to counterparties directly inside China, as opposed to financing firms outside of China for investment within the country. Exposure to non-government counterparties described as “[People’s Republic of China] nationals residing in Mainland China or other entities incorporated in Mainland China and their subsidiaries and [joint ventures]” increased 9.9%, whereas exposure to non-government counterparties described as “[People’s Republic of China] nationals residing outside Mainland China or entities incorporated outside Mainland China where the credit is granted for use in Mainland China” only grew 8.3%. This would imply that there will be less inbound foreign exchange flows into China, because the funding has already occurred within China. This should put less pressure on the renminbi to appreciate.
Lastly, the bank’s net short position in the renminbi decreased from HK$1.7 billion as of December 31, 2016 to HK$0.3 billion as of June 30, 2017. The bank’s net long position in the U.S. dollar also decreased from HK$23.8 billion as of December 31, 2016 to HK$15.7 billion as of June 30, 2017. The bank is still short the renminbi and long the U.S. dollar, but to a significantly lesser degree than six months ago. Its positions seem to indicate that the bank believes appreciation in the renminbi will not continue to occur.
The trend of more exposure within China, as opposed to China-inbound exposure, will likely mean less pressure on the renminbi to appreciate. The bank has positioned its short position in the renminbi and long position in the U.S. dollar to benefit from further depreciation of the renminbi.
