China’s August bank lending predicted to be steady

Shift to credit easing still intact as PBC bolsters economy: Reuters poll

China’s banks likely extended fewer new loans in August than the previous month, but the pace was still well above last year’s levels as the central bank looks to support the economy amid rising US trade tensions, a Reuters poll showed.

Money supply growth likely hovered near multi-month highs, while outstanding loans expanded at the same pace as in July.

As US tariffs threaten to heap more pressure on China’s already slowing economy, policymakers have shifted their focus in recent months to improving credit conditions and shoring up business confidence.

The People’s Bank of China (PBC), the country’s central bank, has cut banks’ reserve requirement ratios (RRR) three times so far this year to encourage banks to keep lending to struggling firms and has injected liquidity in various ways to bring down borrowing costs.

China’s banks extended 1.3 trillion yuan ($190.04 billion) in net new loans in August, easing from July’s 1.45 trillion yuan but nearly 20 percent more than the same month last year, according to a Reuters survey of 35 economists.

Policymakers hope these measures will ease some of the strains produced by a multiyear regulatory crackdown on riskier lending and debt, which was pushing up financing costs and fueling a growing number of defaults.

Annual outstanding yuan loan growth was seen at 13.2 percent in August, the same pace as in July.

Analysts expect Chinese authorities to roll out further growth-boosting measures in coming months as the weight of US tariffs mounts. Indeed, more sweeping US measures are expected this month.

Analysts are penciling in at least one more RRR cut this year. But with bad loans on the rise, the government is having difficulty persuading banks to take on more exposure to smaller companies, which are vital for economic expansion and job creation.

Chinese banks have traditionally been more reluctant to lend to small and private firms, which they consider to be riskier than State-owned firms.

China’s finance ministry dangled yet another incentive to banks on Thursday, saying they will get a tax break on income from loans to smaller firms.

Total new bank loans in the first seven months of the year jumped 19 percent from a year earlier to 10.48 trillion yuan. That is well on track to set a new full-year record, eclipsing last year’s 13.53 trillion yuan.

But the increased bank lending has barely compensated for shrinking off-balance sheet shadow loans, which have been one of the major targets of regulators as they seek to reduce systemic financial risks.

The PBC is due to release August lending and money supply data this week.