Hong Kong June Lending Accelerates, Deposits Edge Higher

Renminbi deposits in Hong Kong declined 3.6% in June to 1.0935 trillion yuan ($152.5 billion). But cross-border trade settlement activity strengthened, with renminbi remittances rising to 1.2777 trillion yuan from 1.1296 trillion yuan in May. The divergent trend suggests yuan outflows are shifting toward trade settlement rather than deposit holdings, which could support transaction banking revenue for Hong Kong lenders.

Broad money measures expanded modestly. Hong Kong dollar M2 and M3 each rose 0.8% in June and were 2.6% higher than a year earlier. Total M2 and M3 advanced 0.1% during the month and were up 9.2% year on year. The seasonally adjusted Hong Kong dollar M1 fell 1.0% in June and was 3.0% lower than a year earlier, reflecting in part investment-related activity, the HKMA said.

The HKMA cautioned that monthly deposit movements can be influenced by interest rate changes, fundraising activity, and seasonal funding demand, and that longer-term trends provide a more reliable indicator than individual monthly fluctuations.

The lending acceleration, combined with a flatter deposit base, points to improved net interest income for Hong Kong banks in the second quarter. The loan-to-deposit ratio at 71.5% remains below the historical peak of 78% reached in late 2022, leaving room for further margin expansion if loan growth continues to outpace deposit inflows.