Rapid loan growth on the mainland last month might be an indication that Beijing could carry out further monetary easing as it braces for possible shocks from the United States and Europe.
Exceeding economists' estimates, new yuan loans in December totalled 640.5 billion yuan (HK$783 billion), 14 per cent higher than in November and up 33 per cent year on year. The December figure, the strongest since April, brought the full-year yuan loan growth for mainland banks to 7.47 trillion yuan, in line with the targeted goal of 7.5 trillion yuan.
Total outstanding loans increased by 15.7 per cent to 58.19 trillion yuan last year.
Economists said the latest figures help alleviate fears of a hard landing. They also take comfort from the fact that loan growth rose to meet the full-year target. This shows the central bank has managed to control the pace and magnitude of monetary easing, they say.
Some were, however, more cautious. UBS economist Wang Tao said that while it is clear that the government is determined to rely on formal banking channels to ensure adequate growth in credit, figures on other forms of social financing remain to be released, making the overall monetary condition still unclear.
People's Bank of China governor Zhou Xiaochuan said over the weekend that the country must be ready to tackle possible shocks from Europe's debt crisis and economic uncertainties in the US.
Beijing will cut at least 150 basis points in reserve requirements in the first half of this year, with the next cut likely to happen in the coming weeks, said Qu Hongbin, chief economist at HSBC.
However, according to Daiwa Securities economist Sun Mingchun, that might not happen before next month.
The PBOC on Friday said it would stop issuing central bank bills before the Lunar New Year, helping pump more liquidity into the system. New bills are used to soak up liquidity in circulation.
Sun said loan growth could reach about 8.5 trillion yuan this year. Warren Blight of Keefe, Bruyette & Woods put the figure at around 8 trillion yuan, while Michael Werner of Sanford C. Bernstein forecasts 7.5 trillion yuan to 7.8 trillion yuan.
December yuan deposits reached 1.43 trillion yuan, bringing the loan-deposit ratio among banks down 30 basis points to 67.7 per cent from a three-year high in November.
This, however, does not solve the problem of deposit outflows at banks as investors have been shifting money into other higher-return channels amid bank interest rates that fail to beat the rate of inflation.
Analysts said banks typically try to attract as many deposits as they can at quarter-ends to post a lower loan-deposit ratio in their results. These deposits tend to be short-term in nature and often exit the banking system within months.
'The No 1 constraint on loan growth will be deposit growth' in 2012, Werner said.
The PBOC announced a reserve requirement ratio cut of 50 basis points on November 30, bringing an end to a credit-tightening policy that had characterised much of the past year. The cut will add about 400 billion yuan of liquidity into the banking system, said Werner.