China bank loans to slow as lenders rapidly exhaust annual quotas
Limits on credit likely to raise costs of borrowing, squeezing company profit margins in world’s second-largest economy, analysts say
Chinese banks are set to see a slowdown in lending growth in the second half of the year, having exhausted most of their annual credit quota, raising the spectre of corporate defaults as financing costs climb further in the world’s second-largest economy.
Beijing’s crackdown on riskier lending has already stretched financing costs and hurt profit margins. Analysts estimate banks have used 80 per cent of their yearly credit quota over January to June, versus the usual 60 per cent, amid a regulatory push to bring shadow financing activities to the main loan book.
“Loan demand is strong throughout the whole year,” said Ma Kunpeng, chief financial industry analyst at China Merchants Securities. “The core conflict in the second half is loan quota – whether banks will be able to extend more loans than they originally planned.”
The country’s top five lenders, including Industrial and Commercial Bank of China (ICBC), China Construction Bank and Agricultural Bank of China, will report their first-half results over the next two weeks.
China saw a 12.9 per cent growth in outstanding yuan loans as of the end of June. Nomura’s China economist Wendy Chen expects this to moderate to 12.6 per cent year-on-year in the third quarter and 12.4 per cent in fourth, from 13.5 per cent in 2016.
