DB Research    Chinese Banks - July 2017banking volume – A temporary rebound in creditGrowth    The PBOC reported July 2017new loans of Rmb826bn and new TSF ofRmb1.22trn, both exceeding consensus estimates. Adding back strongmunicipal bond issuance of Rmb845bn, system credit growth rebounded to15.4% yoy from 14.7% in June (Fig. 1). We attribute the stronger-thanexpectedcredit data to 1) banks bringing off-B/S shadow credit into on-B/S, and 2)accelerating bond financing on lower rates. Given the still healthy macro data,we expect the financial deleveraging campaign to continue in order to deleverfinancial markets and contain the asset bubble. Thus we maintain our forecastthat system credit will fall to 13%-14% yoy by end-2017.(Hans Fan, 85222036353)    Chinese Banks - Better earnings quality should drive big banks' re-rating    The CBRC released 2Q17operating data for China’s all commercial banks, withquarterly net profit at Rmb477bn, up 11.6% yoy (1Q17: +4.6%). The earningsrecovery was driven by moderating NPL formation, lower credit cost and mildNIM expansion (Fig 1). For the big banks, we see gradual improvements inearnings quality, characterized by an NIM recovery, lower NPL ratio andstronger provision coverage. Hence, we expect the big banks to report solid2Q17results, which should help drive a re-rating. In contrast, joint-stock banks(JSBs) slowed asset growth notably and reported further NIM contraction amidfinancial deleveraging. We stay cautious on JSBs. Top picks: ICBC and BOC.(Hans fan, 85222036353)

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