China sees bump in new loans but ‘risks on rise’

Lending climbed more than 430 billion yuan last month, but analyst warns credit growth may lose steam as central bank limits kick in

PUBLISHED : Thursday, 13 July, 2017, 2:00am
UPDATED : Thursday, 13 July, 2017, 2:00am

China’s banks extended more loans than expected last month, but analysts warned of the risk of rising financing costs.

The People’s Bank of China said on Wednesday that 1.54 trillion yuan (HK$1.77 trillion) in new loans was issued last month, up from 1.11 trillion yuan in May. Of the June figure, 483 billion yuan was for home mortgages, reflecting continuing property sales despite efforts by more than 50 cities to keep a lid on home price growth.

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Total social financing, which measures the overall credit and liquidity level in the economy, also beat expectations to rise by 1.78 trillion yuan in June, up from a 1.06 trillion yuan increase in May.

Capital Economics China economist Julians Evans-Pritchard said the pick-up was likely seasonal, as banks often rushed to lend more to meet their targets at the end of second quarter. “While we think the PBOC is now done pushing up interest rates, we expect the monetary tightening that has already taken place to continue weighing on credit growth from some time,” he said.

China Merchants Bank analyst Liu Dongliang said credit growth might lose steam over the rest of the year as slow savings growth and strict PBOC bank capital adequacy rules took their toll.

“Small and medium-sized enterprises may face higher financing costs,” Liu said.

At the same time, the growth of M2, a broad measure of money supply, fell to a record low of 9.4 per cent last month.

PBOC spokesman Ruan Jianhong said the slowdown, which “could be a new normal”, was due to deleveraging inside the financial system. Ruan said the market should not over-interpret the slowdown as long as there was sufficient financing to support economic growth.

In the first half, the banking regulator tightened the screws on commercial banks’ off-the-balance sheet products. “The PBOC is trying to kill two birds with one stone. On the one hand, it wants to ensure enough credit flowing to the real economy; on the other, it’s trying to speed up deleveraging,” said Larry Hu, head of greater China economics at Macquarie Group.

The mainland is due to release the first-half growth figure on Monday, with analysts tipping it to be above Beijing’s full-year growth target of 6.5 per cent.

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Societe Generale chief China economist Yao Wei said the overall data would not give any basis for the PBOC to further tighten liquidity in the money market.

“The seeds are already sown for real growth to lose momentum later. There are clear signs that ­deteriorating liquidity conditions – courtesy of financial regulations being tightened – are resulting in higher borrowing costs and more difficult access to credit for the broad economy,” Yao said.

Banks extended more loans than expected last month, but analysts warned of the risk of rising financing costs.

The central bank said 1.54 trillion yuan in new loans was , according to data released by People’s Bank of China on Wednesday. Among them, 483 billion yuan went to home mortgages, showing stable property sales in spite of a slew of polices introduced in more than 50 cities around the country to keep a lid on home price growth.

Total social financing from last month, which measures the overall credit and liquidity level in the economy, also beat expectation to increase by 1.78 trillion yuan, compared to 1.06 trillion yuan in May.

Julians Evans-Pritchard, a China economist from consultancy Capital Economics, said such pick-up is likely seasonal, as banks often rush to lend more to meet their targets at the end of second quarter.

“While we think the PBOC is now done pushing up interest rates, we expect the monetary tightening that has already taken place to continue weighing on credit growth from some time,” Evans-Pritcwohard said.

Under a slow growth of savings and strict rules that PBOC has imposed on Chinese banks’ capital adequacy, credit growth may lose steam for the rest of this year, according to Liu Dongliang, an analyst from China Merchants Bank.

“Small and medium enterprise may face an increasing cost of financing,” Liu wrote in a note.

On the other hand, the growth of M2, a broad measure of money supply, fell to a record low of 9.4 percent last month.

PBOC’s spokesman Ruan Jianhong said the slowdown, which “could be a new normal,” was due to deleveraging inside China’s financial system. Ruan said the market should not over-interpret the slowdown as long as there was sufficient financing to support economic growth.

In the first half of this year, China’ banking regulator has tightened screws on commercial banks’ off-the-balance sheet products that contributed to the growing pool of unregulated shadow banking.

“PBOC is trying to hit two birds with one stone. One on hand, it wants to ensure enough credit flowing to the real economy; on the other hand, it tends to speed up deleveraging,” said Larry Hu, head of Greater China economics at Macquarie Group.

The stable economic growth in the first six months offered China’s financial regulator some room of breath to continue cleaning up risks in the financial system. The growth figure from January to June is due to be released next Monday (July 17). It’s likely to be higher than Beijing’s full-year growth target of 6.5 percent.

Yao Wei, Chief China economist of French bank Societe Generale, said the overall economic data won’t provide any basis for the central bank to further tighten liquidity in the money market, where banks borrowed from each other for financing.

“The seeds are already sown for real growth to lose momentum later. There are clear signs that deteriorating liquidity conditions - courtesy of financial regulations being tightened - are resulting in higher borrowing costs and more difficult access to credit for the broad economy,” Yao wrote in a recent note.