China’s New Credit Surges to Record in January
(Beijing) — China’s broadest measure of new credit jumped to a record in January even as new bank lending was weaker than expected, with companies turning to the shadow banking sector to get money as regulators directed commercial lenders to rein in loan growth.
Total social financing (TSF) — which includes bond and equity issuance, trust loans and entrusted loans — was 3.74 trillion yuan ($544 million) in January, according to data released on Tuesday by the People’s Bank of China (PBOC). That figure exceeded market expectations for an increase of 3 trillion yuan, and beat the previous record of 3.48 trillion yuan, set in January 2016.
Net new corporate bond issuance continued to fall, dropping by 54 billion yuan, as higher yields and volatility in the bond market caused many companies to cancel or delay new issues. But net new entrusted loans, which are used by banks to get around loan quotas and capital requirements imposed by the PBOC, jumped to 313.6 billion yuan, while undiscounted bankers acceptance bills surged to 613.1 billion.
January is usually a strong month for new lending as banks front-load their loans at the start of the year to earn more interest and maximize profits. But although new loans last month amounted to 2.03 trillion yuan, the most in a year, the figure missed the consensus market forecast for 2.44 trillion yuan and was lower than the record 2.51 trillion yuan in January 2016.
The main factors were a decline in lending to non-bank financial institutions, which dropped by 279.9 billion, and a slump of 452.1 billion in bill financing, an instrument used by banks to boost their lending figures when demand is low and to lower the figure when real demand is high. Medium- and long-term loans to companies, money used mainly for long-term investment, were 43% higher than a year earlier at 1.52 trillion yuan, suggesting a stronger impetus for spending among corporations.
Medium- and long-term loans to households, a proxy for mortgage lending, were a record 629.3 billion yuan last month, reflecting the strong demand in the fourth quarter of last year. Banks were unable to fulfill the demand because of PBOC pressure to rein in home loans, said Shen Jianguang, chief Asia economist at Mizuho Securities Asia.
Several bankers have told Caixin that since mid-January, the central bank has been issuing informal directives to both large state-owned banks and smaller commercial lenders, urging them to rein in credit. But with demand for credit still strong, banks have been using a range of off-balance sheet lending to funnel money through the shadow banking sectors.
“The central bank’s verbal directives can control the loans recorded on banks’ balance sheets, but they can’t really keep total social financing in check,” said Huang Jie, a banking industry analyst with China International Capital Corp. (CICC), one of the country’s top investment banks.
Yan Ling, an analyst from China Merchants Securities, agreed.
“Off-balance sheet financing currently accounts for 33% of the total, remaining at a high level that has never been seen in the past three years, largely because stringent regulation on lending to property developers and the control on the size of credit loans on banks’ balance sheet has spurred more demand for alternative financing,” she said.
The surge in January TSF has raised concerns among some analysts that debt is continuing to rise at a faster pace than economic growth in spite of the government’s pledges to rein in leverage and curb financial risk. But others point out that growth in the stock of TSF is slowing. PBOC data show outstanding TSF, which was 159.65 trillion yuan at the end of January, was up 12.8% compared with year ago, down from a 13.1% growth rate in January 2016.
Contact reporter Dong Tongjian (firstname.lastname@example.org)
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