Slowing loan growth weighs on cautious Chinese banks

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Credit growth continued to slow in December, despite the easing of monetary policy by China’s central bank.

Weak loan growth comes from the real estate sector

New bank loans in China fell more than expected in December, with overall funding dropping from CNY 2.61 trillion in November to CNY 2.37 trillion in December, and new yuan loans falling from CNY 1.27 trillion in November to 1.130 billion CNY last month. . While year-end credit tends to grow more slowly, the numbers come as a surprise given that the People’s Bank of China, China’s central bank, cut the reserve requirement ratio (RRR) by 0.5 points. percentage last month and interest rates by 5 basis points.

For the corporate sector, loan demand is primarily affected by real estate and businesses along the supply chain.

M2 rose to 9% YoY from 8.5% YoY in December, which is as expected as companies prepare cash for bonuses and redemptions ahead of the Chinese New Year.

Easing monetary policy may not work if banks are concerned about credit quality

Weak credit growth this month shows that despite RRR and interest rate cuts, banks are reluctant to lend as their concern is more about credit quality. Indeed, several large companies have recently defaulted. Although the default entities are mainly real estate developers, the risk increases for suppliers, mainly in the building materials industry.

In fact, that is exactly the result of debt reform, which is debt reduction. But if lending continues to see a monthly decline, central government may need to send a clearer message to banks. If risk awareness is high on banks’ list of concerns, then further cuts in RRR and interest rates may not result in more credit. This means that even an easing of monetary policy may not stimulate economic activity.

We could also see a return to the days when banks lend to public enterprises (EPs), which are supposed to be better in terms of repayment capacity.

Read the original analysis: Slowing loan growth weighs on cautious Chinese banks

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