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China's April new bank loans, money supply growth disappoint

[BEIJING] Chinese banks made 707.9 billion yuan (US$114.1 billion) worth of new loans in April, much less than expected, as slowing earnings growth and rising bad loans made lenders more cautious despite government calls to help support the economy.

Economists polled by Reuters had expected new local-currency loans of 903 billion yuan in April, compared with 1.18 trillion yuan in March.

Broad M2 money supply (M2) rose 10.1 per cent from a year ago, missing market expectations of 11.9 per cent and slowing from March's 11.6 percent pace, the People's Bank of China (PBOC) said on Wednesday.

M2 growth was the lowest since records began in 1998.

Outstanding loan growth was 14.1 per cent in April. Analysts polled by Reuters had expected outstanding loans to grow by 14.0 per cent, identical to the previous month's figure.

Total social financing (TSF), a broader measure of overall liquidity in the economy, was 1.05 trillion in April, compared with 1.18 trillion yuan in March and 1.35 trillion yuan in February.

Worried about China's economy, whose growth cooled to a six-year low of 7 per cent in the first three months of this year, the People's Bank of China bank has stepped up support measures.

Over the weekend, Beijing cut interest rates for the third time in six months, having already relaxed banks' reserve requirements four times in that period.

More such moves are expected in coming months, along with further measures to support the ailing property market and more central government spending.

But banking sources have told Reuters that some lenders are not passing on lowering borrowing costs to customers, undermining official efforts to boost the economy.

For their part, companies complain they are short of customers, not credit, and thinning profit margins are making it more difficult to pay off existing debt.

Banks looking for good returns may be more interested in investing in China's red-hot stock market, one corporate borrower in Shenzhen lamented last month. "The PBOC is now behind the curve," wrote Kevin Lai, chief economist at Daiwa Capital Markets in Hong Kong on a note on May 7. "Without more aggressive rate and currency adjustments, deflationary pressure looks set to worsen over the next 12 months at least, especially if the US dollar strengthens by a further 10 per cent or so." The central bank's struggle to bring down short-term money rates in the interbank market finally began yielding results in April, with the benchmark seven-day bond repurchase agreement falling below 3 per cent for the first time since October 2014.

But the economy still faces persistent pressure due to a property market downturn, widespread factory overcapacity, high levels of local government debt and erratic global demand for China's exports.