China Posts Stronger New Loan Growth Amid Policy Push
Chinese banks are picking up the pace of lending as regulators push to pump more cash into an economy rattled by slowing growth and the intensifying trade war with the U.S.
In July banks made 1.45 trillion yuan ($211.7 billion) in net new yuan loans, an increase of 627.8 billion yuan, or 76%, from July a year ago, data from the central bank showed. Outstanding yuan loans totaled 130.6 trillion yuan by the end of July, up 13.2% from a year ago.
The July new-loan total exceeded analysts’ estimates, though volume was down moderately from 1.84 trillion yuan in June. Chinese banks usually loan less money in July after the traditional June push to wrap up first-half lending plans.
The stronger-than-expected lending in July mainly reflected government policies to promote bank lending to small businesses and selected segments of the economy, said E Yongjian, chief financial analyst at the Bank of Communications.
Central authorities have told China’s banks to lend more money after nearly two years of tight credit control. The China Banking and Insurance Regulatory Commission (CBIRC) in a statement Saturday urged banks “to expand the supply of credit and increase financing support for the real economy.”
The CBIRC’s statement followed recent calls from the Politburo, the ruling Communist Party’s top decision-making body, and the State Council, the cabinet, to increase support for the economy through monetary and fiscal policies.
China’s broader money supply measurement, M2, grew 8.5% in July from a year earlier. The July M2 growth rebounded from a record low of 8% in June and was the highest in five months, central bank data show.
Analysts said the stronger M2 reading reflects improving market liquidity and the government’s accelerated fiscal spending.
Data from the CBIRC showed that July’s new loans to infrastructure projects surged by 46.9 billion yuan from June to 172.4 billion yuan. Zhang Xu, analyst at Everbright Securities, said the increase reflects policy support to urban construction projects following pledges by the Politburo and the cabinet.
Social financing slows
Despite strong bank lending, China's total social financing, a broad measure of credit and liquidity in the economy, posted net growth of 1.04 trillion yuan in July, down 12% from 1.18 trillion yuan in June, according to the central bank. Weakening total social financing growth usually suggests tepid credit demand from the economy.
Total social financing includes off-balance sheet forms of financing that exist outside the formal bank lending system, such as initial public offerings, loans from trust companies and bond sales.
In July, trust loans, entrusted loans and undiscounted bankers’ acceptances, which are common forms of “shadow banking” finance, fell a combined 488.6 billion yuan, reflecting regulators’ continued crackdown on shadow lending to contain financial risks.
Everbright Securities said in a note that given the weak total social financing growth, policymakers are likely to maintain an easing monetary stance to offset the impact of the deleveraging campaign.
China has taken a series of steps this year to bolster credit supply. In late July, China's central bank injected 502 billion yuan of cash into the banking system through loans to commercial banks in a bid to encourage increased lending to small companies and investments in corporate bonds. That followed three targeted cuts in the reserve requirement ratio for some lenders aiming to increase credit and lower financing costs for smaller enterprises.
But policymakers have been concerned that measures intended to encourage lending to spur the economy haven’t succeeded in “unclogging” the transmission mechanism of monetary policy.
The top financial supervisory agency under the State Council in late July asked banks to improve internal incentive mechanisms to ensure credit to flow into the most needed areas of the economy.
The central bank said in its quarterly monetary policy report Friday that it will continue prudent and neutral monetary policy and keep liquidity at a reasonable and ample level.
Contact reporter Han Wei (firstname.lastname@example.org)
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