China’s credit expansion cooled in May amid crackdown on shadow banking, analysts say

A broad measure of aggregate financing is expected to show an overall cooling in May, as Beijing taps the brakes on the shadow banking sector and as mortgage lending cools

PUBLISHED : Monday, 05 June, 2017, 5:17pm
UPDATED : Monday, 05 June, 2017, 11:15pm

Broad credit growth in China is expected to have slowed in May, as the shadow banking industry came under closer scrutiny amid Beijing’s ongoing drive to cut leverage and root out irregularities in the financial industry, analysts said.

Regulators have tightened rules on banks’ wealth management products and clamped down on interbank lending, putting a lid on shadow banking and leaving less liquidity available for speculative investments.

Analysts cautioned however that the campaign to rein in credit comes at a time when Beijing is seeking to guide liquidity towards real economic activity rather than financial markets speculation, suggesting a policy dilemma that could result in weak credit growth in certain parts of the economy.

“There has been a clear trend of diminishing shadow banking,” said Chen Ji, a senior researcher at Bank of Communications in Shanghai. “Banks’ credit expansion is very likely to slow down amid Beijing’s drive to reduce leverage among the financial industry.”

The value of new yuan loans in May is expected to slow to 1 trillion yuan (US$146.7 billion), down from 1.1 trillion yuan in April and 1.02 trillion yuan in March, according to analysts at Bank of Communications.

The People’s Bank of China is expected to disclose the May monetary data around mid-June.

Traditional bank lending is expected to remain a pillar for the broader economy, helping to shore up aggregate financing as the crackdown on the shadow banking sector continues, analysts said.

China International Capital Corp said it expects new yuan loans in May of 900 billion yuan.

Aggregate financing, a measure of broad financing, may shrink to 1.1 trillion yuan from April’s 1.39 trillion yuan and 2.12 trillion yuan in March, CICC said in a note.

“Some banks have already front-loaded loans in the previous months, leaving little space for a sharp rise of credit in the coming months,” said David Qu, an economist at ANZ in Shanghai.

Growth in mortgage lending is also expected to cool as major cities implement measures to keep house prices in check, helping to put the brakes on overall credit growth, he added.

Among the 15 first- and second-tier cities surveyed, new home prices were up on month in six cities in April, compared with nine in March, suggesting a gradual cooling in the housing market, according to official housing data.

Meanwhile, residential property sales by floor space fell 36 per cent year-on-year in April, while by value they plunged 47.8 per cent, according to calculation based on National Statistics Bureau data.

The National Statistics Bureau, which tracks home prices of 70 major mainland cities, is expected to release housing data for May on June 18.