Loan data at mainland banks raises concerns over credit quality

PUBLISHED : Friday, 11 January, 2013, 12:00am
UPDATED : Friday, 11 January, 2013, 5:24am

New loans extended by mainland banks fell last month but total financing soared, in a sign the economy is increasingly relying on riskier non-bank lending.

Banks doled out 454.3 billion yuan (HK$560 billion) in new loans in December, compared with 522.9 billion yuan in November and 640.5 billion yuan a year earlier, the People's Bank of China said yesterday.

New bank loans totalled 8.2 trillion yuan for the full year, at the low end of the widely expected range of eight trillion to 8.5 trillion yuan. However, total financing in the economy, which includes those by non-bank intermediaries, surged 23 per cent to 15.76 trillion yuan from 2011, thanks to skyrocketing trust loans and corporate bond issues. The aggregate financing rose from 1.27 trillion yuan in December 2011 to 1.63 trillion yuan last month.

"A large amount of total financing suggests overall financial conditions were not as tight as the loan data would suggest," said Song Yu, an economist with Beijing Gao Hua Securities. "We expect monetary policy to be generally growth-friendly in 2013, but not aggressively loose."

M2 money supply, a broad measure of money supply, rose 13.8 per cent last month from a year earlier, the central bank said, slower than the 14 per cent expected by economists.

Money and credit supply was expected to accelerate this month to accommodate the need for fixed-asset investments to boost the economy, Song said. "It wouldn't be a surprise if loans in January top one trillion yuan."

The country's foreign-exchange reserves grew US$25 billion in the last quarter to US$3.31 trillion at the end of December, the smallest quarterly gain since 2003, data from the central bank showed.

Lu Ting, an economist at Bank of America Merrill Lynch, estimates that China could have experienced a capital flight of about US$35 billion in the fourth quarter of last year.

"With clear signs of an economic recovery, a significant rebound in asset prices, an appreciating renminbi and improved global risk appetite, we expect the direction of capital flows to change to moderate inflow," Lu said.

He forecast economic growth would rebound to 8.3 per cent in the first half of this year, after expanding 7.4 per cent in the third quarter of last year and an estimated 7.8 per cent last quarter.

"I expect Beijing's policy to be marginally pro-growth without big-bang stimuli in the first half," he said. "Significant incremental easing is unlikely and we may see some unwinding of previous credit easing in the second half on concerns of economic overheating, rising inflation and insufficient regulations on shadow banking."

With the rising share of trust loans in total financing, Beijing is widely expected to tighten its grip on this component of shadow banking. Trusts typically offer higher rates of returns than banks, pooling deposits to invest in real estate, stocks, bonds, commodities and other assets.

New trust loans totalled 1.29 trillion yuan last year, 1.09 trillion yuan more than in 2011. Its share in total financing was 8.2 per cent last year, up 6.6 percentage points.