China bank loans down to lowest in a year, but broader credit growth quickens

China’s new bank loans fell more than expected in October to their lowest in a year, but the drop was likely seasonal and policymakers are expected to maintain solid support for the economy as the global pandemic drags on.

Authorities have stepped up support for cash-starved smaller companies after a record coronavirus-induced slump early in the year.r

But while China’s economy is recovering quickly from the health crisis, surging infections in Europe and the United States are clouding the global outlook.

Lenders issued 689.8 billion yuan (US$104.3 billion) in new yuan loans last month, data from the People’s Bank of China (PBOC) showed on Wednesday, down from 1.9 trillion yuan in September and falling short of analysts’ expectations.

Analysts polled by Reuters had predicted new loans would drop to 800 billion yuan. October new loans hit the lowest since the same month last year, when the tally was 661.3 billion yuan.

Bank lending in China tends to slow late in the year as lenders have used up most of their annual quotas, but PBOC governor Yi Gang has said new loans are likely to hit a record of nearly 20 trillion yuan (US$3 trillion) for 2020 as a whole, as policymakers look to quickly get the economy back on solid footing.

Household loans, mostly mortgages, fell to 433.1 billion yuan from 960.7 billion yuan in September, while corporate loans plunged to 233.5 billion yuan from 945.8 billion yuan.

Improving economic data and recent comments from PBOC officials have prompted market speculation that the central bank is ready to start dialling back emergency stimulus unleashed earlier in the year.

But analysts say it will not rush to exit existing measures as long as the pandemic and related global demand uncertainties persist.

Liu Guoqiang, a vice-governor of the PBOC, said on Friday the central bank would consider policy changes as the economy recovers, but would not act hastily, with any shifts based on accurate economic assessments.

Broad M2 money supply in October grew 10.5 per cent from a year earlier, lagging estimates of 10.9 per cent forecast in the Reuters poll, the same pace as in September.

Outstanding yuan loans grew 12.9 per cent from a year earlier, easing from a 13.0 per cent rise in September. Analysts had expected 13.0 per cent.

Most China watchers prefer to focus on the annual growth figures, which are a better guide to underlying trends in credit creation given that net issuance figures are highly seasonal.

Annual growth of outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, quickened to 13.7 per cent in October from 13.5 per cent in the preceding month.

In October, TSF fell to 1.42 trillion yuan from 3.48 trillion yuan in September. Analysts polled by Reuters had expected 1.4 trillion yuan.

The fall was due to a drop in government bond issuance. Chinese local governments have almost exhausted their annual issuance quotas as part of a drive to jump-start infrastructure investment and construction activity.

China’s policymakers are close to setting an average annual economic growth target of around 5 per cent for the next five years, at the lower end of ranges previously considered as global risks cloud the outlook, policy sources said.

“Broad credit growth hit is highest level in nearly three years as faster growth in direct financing and shadow credit more than offset slower bank lending. We think this acceleration will continue until the turn of the year, providing an ongoing tailwind to the economic rebound,” said Julian Evans-Pritchard, senior China economist at Capitcal Economcis.

“Looking ahead, we think credit growth will remain strong in the near-term. Admittedly, bank lending has started to slow which we think will continue in the coming months given that loan quotas are now being tightened.

“But appetite for bond and equity issuance among private firms is picking up as confidence in the outlook has returned. The upshot is that the tailwind from policy stimulus remains strong and is likely to result in a period of above-trend economic growth in the coming quarters.”