Bank loans

Chinese bank lending unexpectedly increases in May, but broader credit growth slows

A Chinese yuan note is seen in this illustrative photo from May 31, 2017. REUTERS/Thomas White/Illustration

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BEIJING, June 10 (Reuters) – China’s new bank lending unexpectedly rose in May from a month earlier, but overall credit growth continued to slow as the central bank sought to contain rising debt of the world’s second largest economy.

China’s top leaders have repeatedly vowed to avoid any sharp policy shifts, keeping borrowing costs low and telling banks to maintain support for small businesses, while being more vigilant about extending credit to hot sectors of the economy such as real estate.

“The peak of the credit cycle may have passed, but the downward slope seems to be smoother than expected,” said Luo Yunong, fixed income analyst at Industrial Securities.

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Chinese banks extended 1.5 trillion yuan ($234.76 billion) in new yuan loans in May, up from 1.47 trillion yuan in April and beating analysts’ expectations of 1.41 trillion yuan, the data showed. released Thursday by the People’s Bank of China (PBOC).

The tally was also higher than the 1.48 trillion yuan issued in the same month a year earlier, when policymakers rolled out unprecedented measures to deal with the shock of the coronavirus crisis.

Household loans jumped to 623.2 billion yuan in May from 528.3 billion yuan in April, while corporate loans reached 805.7 billion yuan last month from 755.2 billion yuan in April.

As expected, growth in outstanding yuan loans slowed to 12.2% year-on-year, the slowest pace since February 2020, and from 12.3% in April. Excluding that period in early 2020, it marked the slowest growth since 2002, according to Capital Economics.

M2 broad money supply rose 8.3% from a year earlier, above Reuters poll estimates of 8.1% and matching the pace in April.

In 2020, the central bank encouraged banks to cut rates for virus-hit businesses and extended loan payment terms for small businesses, among other measures, to give borrowers a break during the coronavirus crisis. .

But with the economy back to pre-pandemic levels, policymakers are now looking to slowly roll back emergency measures and slow credit growth to contain debt risks, without hampering the recovery.

PBOC Governor Yi Gang said inflation was “basically under control” and monetary policy would remain stable on Thursday, in comments a day after data showed the fastest rise in ex-factory prices in over 12 years. Read more

Growth in total social finance (TSF), a broad measure of credit and liquidity in the economy, slowed to 11% in May, the weakest pace since February 2020, and from 11.7 % in April.

Analysts attributed the TSF’s weaker growth to slowing corporate and government bond issuance, and a contraction in virtual credit, which could hamper economic growth going forward.

“The slowdown in credit growth is happening even faster than we expected a few months ago,” Julian Evans-Pritchard of Capital Economics said in a note.

“While the economy has so far withstood the withdrawal of policy support very well, the usual lags mean that weaker credit growth will become a growing headwind for activity over the coming quarters.”

The TSF includes forms of off-balance sheet financing that exist outside of the conventional bank lending system, such as initial public offerings, trust company loans, and bond sales.

The TSF rose to 1.92 trillion yuan in May from 1.85 trillion yuan in April, but fell short of expectations. Analysts polled by Reuters had expected a May TSF of 2 trillion yuan.

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Reporting by Lusha Zhang and Kevin Yao; Editing by Ana Nicolaci da Costa

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