Bank lending in China below expectations, credit growth weak

New lending from Chinese banks fell short of expectations last month as Covid outbreaks and the country’s worsening property crisis continued to weigh on the world’s second-largest economy.

Banks extended 1.25 trillion yuan ($180.63 billion) in new yuan-denominated loans in August, up from July but below analysts’ expectations, according to data from the People’s Bank of China (PBOC) on Friday showed.

Analysts polled by Reuters had predicted new yuan lending would rise to 1.48 trillion yuan in August, more than double the 679 billion yuan in the previous month and more than the 1.22 trillion yuan in the same month last year.

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Household loans, including mortgages, reached 458 billion yuan from 121.7 billion yuan in July, while corporate loans jumped to 875 billion yuan from 287.7 billion yuan in July, according to central bank data.

But analysts say demand for credit remains weak as business and consumer confidence remains fragile.

“August’s lending data was driven by stronger medium- and long-term corporate lending, while household lending remains relatively weak,” said Luo Yunfeng, an analyst at Merchant titles.

Nomura estimates that 49 cities were under some type of COVID lockdown as of September 6, representing nearly 21% of China’s population and about 25% of its GDP.

The property sector, hit hard by a debt crisis, has been hammered by a mortgage boycott, with buyers withholding payments for stalled projects. Sales and construction of new homes have plummeted.

Policymakers on Monday signaled a renewed sense of urgency for measures to shore up the sagging economy, saying this quarter was a critical time for policy action as evidence points to a further loss of momentum.

PBOC Prime Rate Reduction

On August 22, the central bank cut the one-year loan prime rate (LPR), its benchmark lending rate, by 5 basis points, and lowered the five-year LPR, which influences mortgage lending, by a larger margin.

The consumer price index (CPI) rose 2.5% in August from the same month a year earlier, according to data from the National Bureau of Statistics (NBS). Analysts said slowing inflation could provide room for further easing of monetary policy.

“In the near term, any significant acceleration in credit growth looks increasingly unlikely,” Capital saving said in a note.

“The PBOC cut its key policy rates slightly in August. And quantitative controls have continued to be relaxed. But the People’s Bank (of China) is pushing on a string. The demand is the problem.

M2 broad money supply rose 12.2% from a year earlier, central bank data showed, above Reuters poll estimates of 12.1%. M2 increased by 12% in July compared to a year ago.

Outstanding yuan loans at the end of August were up 10.9% from a year earlier, compared with 11% growth the previous month. Analysts were expecting growth of 11%.

Promise of infrastructure projects in Beijing

As part of the economy support measures, local governments will issue 500 billion yuan of deferred special bonds to finance infrastructure projects by the end of October.

Any acceleration in government bond issuance could help boost total social finance (TSF), a large measure of credit and liquidity.

Growth in the total stock of social finance (TSF), a broad measure of credit and liquidity in the economy, slowed to 10.5% in August from 10.7% in July.

The TSF includes forms of off-balance sheet financing that exist outside of the conventional bank lending system, such as initial public offerings, trust company loans, and bond sales.

In August, TSF jumped to 2.430 billion yuan from 756.1 billion yuan in July. Analysts polled by Reuters had expected 2.075 billion yuan.

  • Reuters with additional editing by Sean O’Meara

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Sean O’Meara

Sean O’Meara is an editor at Asia Financial. He has been a newspaper man for over 30 years, working for local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. Passionate about football, cricket and rugby, he is particularly interested in the financing of sport.

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