China Jan new bank loans seen surging as PBOC keeps liquidity taps open: Reuters poll

February 8, 2019

BEIJING (Reuters) – New bank loans in China are expected to have surged to a one-year high in the first month of 2019, a Reuters poll showed, as authorities continued to spur commercial lenders to extend more credit to cash-strapped companies in a slowing economy.

Chinese banks were expected to have extended 2.8 trillion yuan ($415 billion) in net new loans in January, a median estimate in a Reuters survey of 19 economists showed, up from 1.08 trillion yuan given out in December. That would be the highest since the record 2.9 trillion yuan in January last year.

For the whole of 2018, Chinese banks extended a record 16.17 trillion yuan in new loans after the central bank on four occasions last year cut the amount of cash that they were required to keep as reserves.

But that did not stop the world’s second-largest economy from growing at the weakest pace since 1990. Economists say a faster pace of credit expansion is needed to keep the economy from cooling too quickly.

Last month, the People’s Bank of China (PBOC) cut the reserve requirement ratio (RRR) for banks by 100 basis points (bps), encouraging them to lend more. Analysts expect at least a further 150 bps reduction by year-end.

The PBOC has also deployed new tools such as the Targeted Medium-Term Lending Facility (TMLF) at the end of last year, aimed at providing longer-term liquidity for banks to support loan growth.

Wen Bin, Beijing-based chief researcher at China Minsheng Bank, said loans are extended in the form of credit to corporates, infrastructure projects and manufacturers upgrading their factories, and retail ones include credit cards, consumer loans and mortgage loans.

“Our current focus is to guide the improvement of monetary policy transmission, and guide banks to increase support for small and micro enterprises and private enterprises through targeted RRR reductions,” he said. “Under the combined effect of various policies, this year should see a relatively large credit allocation in those areas.”


But China is not expected to flood its financial system with credit all at once, sticking to its line on keeping policy neither too tight nor too loose.

Earlier, sources told Reuters that the PBOC asked some banks to moderate their pace of lending in January, traditionally a busy time for lenders looking to grab a bigger share of the loan market.

Monetary policy will be made more forward-looking, flexible and targeted, the PBOC has said.

Several key credit gauges – such as M2 growth and outstanding total social financing (TSF) expansion – have remained around record lows or have plumbed new ones, indicating overall credit conditions are still tight.

In the poll, annual M2 growth in January was seen at 8.2 percent, up a tick from 8.1 percent in December. The gauge of broad money supply expanded 8 percent in November, its slowest pace ever.

Annual outstanding yuan loan growth was expected at 13.1 percent in January, slowing from 13.5 percent a month earlier.

But TSF, a broad measure of credit and liquidity in the economy, was estimated to have reached 3.25 trillion yuan in January, compared with 1.59 trillion yuan in December.

While the first month of the year typically sees a spike in TSF, that would be the highest since January 2017.

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

Growth of outstanding TSF slowed to an all-time low of 9.8 percent in December as regulators kept up with their crackdown on riskier types of financing, shutting off a major avenue of funding for smaller companies in the private sector.

President Xi Jinping warned last month that local governments and state organizations should find a balance between stabilizing growth and fending off risks, controlling the pace and intensity of such policies.

Most economists still believe that authorities will not resort to more aggressive easing measures such as a cut in benchmark lending rates.

While that would pressure banks to lower borrowing costs for all sizes of companies nationwide, policymakers are concerned it could weaken the yuan currency, spark capital outflows and add to a mountain of debt created by past stimulus sprees.

($1 = 6.7426 Chinese yuan)

(Reporting by Ryan Woo; Additional reporting by Shu Zhang in SINGAPORE; Editing by Richard Borsuk)

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