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China’s financial authorities told commercial banks last month to speed up lending. Photo: Reuters

China’s new bank loans nearly triple in May as Beijing steps up policy support

  • Household loans and money borrowed by corporations increased massively last month, after financial authorities ordered commercial banks to speed up lending
  • Policymakers are determined to reverse a coronavirus-induced economic slump, but analysts say both lenders and potential borrowers remain wary of further disruptions

New bank lending in China surged far more than expected in May, and broader credit growth also quickened, as policymakers attempted to reverse a sharp, coronavirus-induced economic slump.

Chinese banks extended a whopping 1.89 trillion yuan (US$282.6 billion) in new yuan loans in May, nearly tripling April’s tally and handily beating expectations, according to data released by the People’s Bank of China on Friday.

Analysts polled by Reuters had predicted that new yuan loans would surge to 1.3 trillion yuan in May from 645.4 billion yuan in April, and against 1.5 trillion yuan a year earlier.

Household loans, including mortgages, rose to 288.8 billion yuan in May, after contracting by 217 billion yuan in April, while corporate loans soared to 1.53 trillion yuan in May from 578.4 billion yuan in April.

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“Credit growth was stronger than expected last month and is likely to accelerate further following the clear signal in late May that policymakers want banks to step up lending,” said Mark Williams, chief Asia economist at Capital Economics.

“More policy easing is likely. But private sector credit demand is likely to remain subdued while, on current budgetary plans, local government borrowing is about to slow. A dramatic increase in credit growth still seems unlikely.”

Chinese policymakers have stepped up support for the slowing economy as Shanghai and other cities ease coronavirus lockdowns following a drop in new infections.

The cabinet announced a package of 33 policy steps last month, including broader tax credit rebates and the postponing of social security payments and loan repayments to support businesses.

Financial authorities also told commercial banks last month to speed up lending.

In May, the central bank cut its benchmark reference rate for mortgages by an unexpectedly wide margin – its second reduction this year – in a bid to turn around the contracting housing market, which is a key economic growth driver.

But analysts say both banks and potential borrowers remain wary of further virus disruptions.

After discovering a handful of new cases, China’s commercial hub of Shanghai will lock down millions of people for mass coronavirus testing this weekend – just 10 days after lifting a gruelling two-month lockdown – unsettling residents and raising concerns about the business impact.

Premier Li Keqiang has vowed to achieve positive economic growth in the second quarter, although many private sector economists have pencilled in a contraction.

China will increase the credit quota for policy banks by 800 billion yuan (US$120 billion) for them to support infrastructure construction, state television CCTV reported, citing a cabinet meeting.

China orders U$120 billion infrastructure push amid slowing economy

The broad M2 money supply – which measures cash equivalents sitting in depository institutions – grew by 11.1 per cent from a year earlier, central bank data showed, surpassing estimates of 10.4 per cent in the Reuters poll. M2 grew 10.5 per cent in April from a year prior.

Outstanding yuan loans grew 11 per cent in May from a year earlier, compared with 10.9 per cent growth in April. Analysts had expected 10.7 per cent growth.

Growth of outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, quickened to 10.5 per cent in May from 10.2 per cent in April.

TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offerings, loans from trust companies and bond sales.

In May, TSF jumped to 2.79 trillion yuan from 910.2 billion yuan in April. Analysts polled by Reuters had expected May TSF of 2.02 trillion yuan.