New loans weaker than expected
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New loans advanced by banks on the mainland came in weaker than expected last month, suggesting a need for more effective stimulus policies to revive lacklustre demand in the economy, analysts say.
Banks extended 540.1 billion yuan (HK$661.87 billion) in local-currency new loans in July, up 48.5 billion yuan on the same month last year, the People's Bank of China said yesterday.
That put new lending at its lowest monthly level since October, and remarkably lower than the 650 billion yuan to 700 billion yuan widely predicted by economists - indicating monetary easing efforts since late last year have so far not borne fruit.
'Bank loans have not effectively helped counter the economic slowdown,' HSBC economist Qu Hongbin said. 'In order to achieve Beijing's target of stabilising growth, the central bank has to further cut interest rates and the required reserve ratio.
'A reduction in the reserve ratio could be possibly announced as early as this weekend.'
M2, a broad measure of money supply, was up 13.9 per cent from a year ago at the end of last month. The growth was 0.3 percentage points higher than in June, but still slightly slower than PBOC's 14 per cent annual growth target.
Social financing totalled 1.04 trillion yuan last month. Social financing is a liquidity gauge that includes bank loans, corporate bonds and stock issuance.
A breakdown of banks' new loans last month showed loans to non-financial corporates totalled 355.8 billion yuan. Medium- to long-term non-financial corporate loans stood at 92 billion yuan, or 26 per cent of total corporate loans, the central bank said.
Medium- to long-term lending was lower than expected; economists had forecast it would recover because Beijing had vowed to boost investment after economic growth slid to a three-year low of 7.6 per cent in the second quarter of this year.
'Bank lending data seems quite disappointing,' UBS Securities economist Wang Tao said. 'The share of medium- and long-term loans in lending to non-financial corporate sector remained below 30 per cent, suggesting that bank lending has not been as supportive to fixed investment as desired.'
Chang Jian, an economist at Barclays Capital, said monetary policy was unlikely to be very effective at boosting demand during this cyclical downturn.
The mainland has cut interest rates twice since June and reduced the ratio that banks have to set aside as deposit reserves thrice since November, in an attempt to lower borrowing costs and free up more funding. However, this has failed to revive export growth, which slowed to just 1 per cent last month, or industrial output, which grew the least since 2009.
'More investment spending and more proactive fiscal policy can be expected in the second half, including a speed-up of key infrastructure projects and social housing,' Chang said. Also on the cards, she said, were more investment projects from local governments, 'with financing being channelled through bank lending and bond issuance'.
Total amount of social financing, in yuan, last month, 502.3 billion yuan more than in July last year