China’s loan growth numbers will look more subdued after January’s record

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Chinese banks’ issuance of record new yuan loans in January is unlikely to be a signal that lenders will open the floodgates of credit amid easing monetary conditions.

Chinese banks issued 4.199 billion yuan in new loans in January, the strongest month on record, according to data released Feb. 11 by the People’s Bank of China, or PBOC. Yet outstanding banking system loans, which indicate overall available bank credit, slowed to their lowest growth rate since March 2006, rising 11.17% from a year earlier.

The central bank did not elaborate. Some of the expired loans may not have been renewed and have been taken out of the banking system, offsetting the increased volume of new loans, analysts said. January is generally a good month for lending as businesses and local governments secure funding for new projects.

The PBOC will remain “disciplined” and another wave of credit is not likely, said Wenyu Xu, Shanghai-based macro analyst at Huatai Futures Co. of the still-sluggish real estate and private consumption sectors,” said Xu.

Support for the economy

Beijing has cut borrowing costs and freed up more bank liquidity for lending in recent months to shore up its economy, where growth has slowed following a government crackdown on excessive leverage in the real estate sector as well as ongoing supply chain issues due to the pandemic. GDP growth slowed to 4.0% year over year in the fourth quarter. This compares to GDP growth of 18.3%, 7.9% and 4.9%, respectively, in the first three quarters.

Authorities will be measured with their easing measures as any large-scale liquidity surge would undo years-long efforts to reduce high corporate debt, analysts said. Some believe another February rate cut is still on the table, after the PBOC cut its prime lending rate in December 2021 and January and further lowered its reserve requirement ratio in December 2021 to boost growth. economic.

In its report on the implementation of monetary policy for the fourth quarter of 2021, also published on February 11, the PBOC reiterated that one of its objectives is to maintain the stability of the banking system with a “reasonable abundance of liquidity “.

Priority to stability

Stability is always the top priority in China, especially when it comes to the economy. “Beijing can stage a return of credit impulse to stabilize growth, even in the absence of a rapid recovery in the housing market,” Morgan Stanley said in a research note. The composition of loans will improve in the coming months as the fiscal impulse filters to infrastructure projects, the investment bank said.

Total social finance, or TSF – a large measure of credit and liquidity in the world’s second-largest economy – rose 10.6% year-on-year to 6.17 trillion yuan in January, helped by government bond issuance, according to central bank data.

FST loans and new yuan loans “expected to remain somewhat optimistic in the first half of 2022 [as] policymakers still see the need to lift the repressed real estate sector and boost economic growth,” said Michael Zeng, Hong Kong-based banking analyst at Daiwa Capital Markets.

Still, “faster loan growth may not add more pressure on banks’ net interest margins and non-performing loans, as lenders carefully manage the rate spread between deposits and loans” , said Zeng, noting that industry statistics showed NIM improved in the fourth quarter of 2021.

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