China loans slow as economy cools
Central bank pushes for more credit to small companies as corporate lending declines on weaker demand and declining exports
Chinese banks made fewer new loans in August than expected, highlighting problems facing the central bank as it tries to boost credit to smaller companies.
Chinese banks made fewer new loans in August than expected, highlighting problems facing the central bank as it tries to boost credit to smaller companies facing weaker demand at home and shrinking export orders.
With US trade duties threatening to ratchet up pressure on China’s already slowing economy, its policy-makers have shifted focus in recent months to growth-boosting measures, pushing banks to lend more and bringing down financing costs.
Chinese banks extended 1.28-trillion yuan ($186.4bn) in net new loans in August, according to data released by the People’s Bank of China on Wednesday. Analysts polled by Reuters predicted an August tally of 1.3-trillion yuan, down from July’s 1.45-trillion yuan but nearly 20% more than the same month in 2017.
“Financing demand is relatively weak as firms are unwilling to borrow,” said Luo Yunfeng, chief analyst at Merchants Securities in Beijing.
Corporate lending fell from July, while household loans picked up sharply, suggesting banks are taking on more exposure to relatively safer consumer loans as corporate credit quality deteriorates along with the slowing economy.
Corporate loans fell to 612.7billion yuan in August from 650.1-billion yuan a month earlier. Household loans, mostly mortgages, rose to 701.2-billion yuan in August from 634.4billion yuan in July. Household loans accounted for 54.8% of total new loans in August, versus 43.8% in July.
Adding to signs of fading credit confidence, analysts pointed to a sharp increase in banks’ bill financing amid suspicion that they are seeking to expand their loan books with such short-term loans to limit default risks. Bill financing jumped to 409.9-billion yuan in August, accounting for nearly a third of new loans and up from 238.8- billion yuan in July.
Broad M2 money supply grew 8.2% in August from a year earlier. Analysts expected it to increase 8.5%, matching July’s pace. Outstanding yuan loans grew 13.2% from a year earlier, matching expectations and in line with July.
To head off a sharper slowdown in the economy and weather the US trade row, China is ramping up infrastructure spending and pumping ample liquidity into the financial system to guide borrowing rates lower. The central bank is also trying to encourage banks to keep lending to struggling small and mid-sized private firms, which traditionally have a tougher time accessing affordable funding than their larger, state-owned peers.
Regulators reportedly said in August they will encourage banks to roll over loans to smaller firms without requiring repayment of principal.
But China’s commercial banks are increasingly cautious.
Nonperforming loans jumped sharply for smaller banks in the second quarter and corporate bond defaults are on the rise, even as Beijing tries to maintain a broader clampdown on riskier lending and prevent another explosive jump in debt.
At least 13 lenders, including 10 rural commercial banks, have had their credit ratings cut or outlooks downgraded to negative since the start of 2017.
With the Trump administration expected to trigger more tariffs against Beijing at any time, and possibly extend them to cover virtually all of China’s exports to the US, analysts are pencilling in more financial and monetary policy support measures in coming months. The central bank has already cut banks’ reserve requirement ratios three times so far this year, with at least one more cut expected in 2018.