BEIJING, April 12 — China’s new bank loans rebounded in March, rising far more than expected, as policymakers pushed lenders to support struggling smaller companies and shore up the slowing economy.
Analysts say China needs to turn around weak credit growth to head off a sharper economic slowdown this year, but there are concerns this may fuel a further rise in bad loans as banks loosen lending standards.
Chinese banks extended 1.69 trillion yuan (RM1.04 trillion) in net new yuan loans in March, compared with analysts expectations of 1.2 trillion yuan in a Reuters poll.
New lending pulled back in February due to seasonal factors after a record credit pulse in January.
“The latest data suggest that credit growth may now be bottoming out due to the PBOC’s efforts to loosen monetary conditions. However, a rapid economic turnaround is unlikely,” Capital Economics said in a report.
Total bank lending in the first three months of 2019 hit a record quarterly tally of 5.81 trillion yuan.
Broad M2 money supply in March grew 8.6 per cent from a year earlier — the highest in 13 months, data released by the People’s Bank of China showed today, also well above market estimates. Analysts had expected an 8.2 per cent rise, up from an 8.0 per cent increase in February.
Outstanding yuan loans grew 13.7 per cent from a year earlier — the highest pace since June 2016, the fastest pace in nearly three years. Analysts had expected it to hold steady from February at 13.4 per cent.
Growth of outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, quickened to 10.7 per cent in March from 10.1 per cent in February, versus January’s 10.4 per cent and a record low of 9.8 per cent in December.
TSF growth is a rough gauge of credit conditions.
In March, TSF jumped to 2.86 trillion yuan from 703 billion yuan in February, central bank data showed.
Gradual policy easing likely
The central bank, which has already slashed banks’ reserve requirement ratio (RRR) five times over the past year, is widely expected to ease policy further in coming quarters to spur lending and lower borrowing costs, especially for small and private firms vital for growth and job creation.
But policymakers have repeatedly vowed not to open the credit floodgates in an economy already saddled with piles of debt — a legacy of massive stimulus during the global financial crisis in 2008-09 and subsequent downturns.
While the PBOC has been guiding money market rates lower in various ways, most analysts do not expect China to cut its benchmark lending rate unless economic conditions threaten to sharply deteriorate.
A Reuters poll forecasts three more cuts to RRR of 50 basis points each in this quarter and the next two.
Fiscal stimulus
With an eye on debt levels, Beijing is leaning more on fiscal stimulus to support growth this year, with more spending on roads, railways and ports, along with nearly two trillion yuan in tax cuts.
But leverage has to go up in order for stimulus to work, economists at Bank of America Merrill Lynch (BAML) noted in a recent report. They believe a moderate increase in public debt is manageable as long as it helps prevent a sharp fall in growth.
China’s top four state-controlled banks warned last month that bad loans could rise. Beijing is pushing banks to boost lending to smaller businesses by at least 30 per cent this year, though they are seen as higher credit risks.
Regional banks may be more vulnerable to deteriorating credit quality. The National Audit Office reported this month that some banks in the central province of Henan had recorded 40 per cent of their loan books as bad debt by the end of 2018.
Signs of steadying?
Optimism over the outlook for the world’s second-largest economy has improved recently. Strong bank lending is setting the stage for a possible bounce in investment in coming months, while business surveys showed activity in the manufacturing sector unexpectedly returned to growth in March.
Washington and Beijing also have accelerated high-level talks to resolve their year-long trade dispute, though a deal is by no means certain.
Still, many analysts say China’s economy is not out of the woods, yet.
While China’s weak credit cycle has already bottomed out, its economic slowdown may not end until the summer, said Chen Long, China economist at Gavekal Dragonomics in Beijing.
“Credit growth is a leading indicator for the Chinese economy and after that bottomed out, it could be a few months before other activities start to bottom out,” he said.
Economic growth is expected to cool to around 6.2 per cent this year, a 29-year low, according to a Reuters poll. The economy grew 6.6 per cent last year. — Reuters
