Caixin
Jun 12, 2012 06:22 PM

Loan Demand Remains Weak Despite Higher May Figure

(Beijing) -- New figures for loans issued by Chinese commercial banks in May have exceeded market expectations, boosted by smaller banks and rising long- and medium-term lending. However, the structure of loan issuance indicates that market demand for credit remains weak.

The central bank said on June 11 that yuan-dominated new loan issuance in May totaled 793.2 billion yuan, increasing 111.4 billion yuan from April and 241.6 billion more than in May 2011.

The figure also exceeded expectations. The average of forecasts in a survey by Caixin in early May was 710 billion yuan.

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Lian Ping, chief economist of the Bank of Communications, said that the higher loan figure for May indicated a revival in credit demand, especially in central and western regions, as the government switched its focus to stabilizing growth and accelerated approval for construction projects. Lian also cited falling market interest rates as contributing to demand.

Lu Zhengwei, chief economist at Industrial Bank, said that in May the portion of medium- and long-term loans increased, indicating rising borrowing demand for new investment. However, the large portion of bill note financing reflected overall credit demand remained weak.

Official data indicated moderate growth in industry and investment in May. The country's fixed-asset investment in May rose 1.15 percent from April, new data from the National Statistics Bureau showed. Large-scale industry grew 9.6 percent from the same month in 2011 and 0.89 percent from April.

Data from central bank showed that among the total lending issuance in May, loans to non-financial enterprises totaled 575.8 billion yuan, 40.7 billion yuan more than April, of which the amount in long- and medium-term loans was 43.4 billion yuan.

Short-term loan issuance reached 152.4 billion yuan, and note financing totaled 232 billion yuan, close to the April figures to remain at a high level.

Wang Hu, an analyst at Guotai & Juan Securities, said the structure of May lending was similar as in previous months in which short-term loan and note financing accounted for a large portion. A large amount of loans were issued at the end of the month, Wang said.

But in May, the portion loaned by the Big Four state-owned bank saw a decline from 38 percent in April to 29.5 percent, with total lending of 234 billion yuan, indicating smaller banks were issuing more loans.

Shi Lei, deputy general manager of the fixed-income department at Ping An Securities, said many joint stock banks were able to issue more loans in May because they had been actively attracting deposits. Furthermore, the cut in the reserve-requirement ratio on May 18 injected more liquidity into the market.

On June 7, the central bank announced a reduction in benchmark interest rates by 0.25 percentage points, the first reduction since 2008. After the reduction, the benchmark one-year rate was 3.25 percent for deposits and 6.31 percent for lending.

Ba Shusong, deputy director of the Finance Research Institution under the State Council's Development Research Center, expected the move to stimulate loan demand and test banks' pricing capability.

Barclays Capital predicted in a June 11 report that the central bank would further cut lending rate by 25 basis points by the third quarter, along with two other cuts in the reserve-requirement ratio, to support market demand and credit growth.

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