China Oct loan data disappoints, signals further slowing

Beijing

CHINA'S credit growth slowed sharply in October, despite pressure by regulators on banks to help keep cash-starved companies afloat, pointing to further weakening in the economy in coming months.

While October is typically a slow month for Chinese credit, growth in several key gauges such as total social financing (TSF) and money supply fell to record lows, suggesting policymakers will need to step up efforts to revive flagging investment.

The weaker trend suggested overall credit conditions in China tightened last month despite recent easing in monetary policy, including moves by the central bank to bring down market interest rates and four cuts in banks' reserve requirements so far this year.

Chinese banks extended 697 billion yuan (S$138 billion) in net new yuan loans in October, central bank data showed on Tuesday, much less than expected.

Analysts polled by Reuters had predicted new loans of 862 billion yuan in October, down from 1.38 trillion yuan in September but well ahead of historical averages as lenders began to heed regulators' calls to support smaller firms hit by the economic slowdown, especially those in the private sector.

However, Chinese banks are wary of a fresh spike in bad loans after years of pressure from regulators to reduce riskier lending. Chinese bank shares tumbled on Friday on fears they will be saddled with more non-performing loans if they follow the latest official guidance.

Corporate loans tumbled to 150.3 billion yuan in October from 677.2 billion yuan a month earlier.

Household loans, mostly mortgages, fell to 563.6 billion yuan from 754.4 billion yuan in September. Household loans accounted for 80.9 per cent of total new loans in October, versus 54.7 per cent in the preceding month, according to Reuters' calculations based on central bank data.

In its financial stability report earlier this month, the central bank highlighted the sharp rise in household debt in recent years, noting it needed to be monitored. Analysts warn the jump could undermine Beijing's efforts to spur consumer spending.

Outstanding short-term consumer loans rose 37.9 on-year in 2017 and the total household debt to GDP ratio was at 49 per cent at the end of last year, the central bank said in the report.

The weighted average lending rate for non-financial firms, a key indicator reflecting corporate funding costs, fell 0.03 per cent point in the third quarter to 5.94 per cent, the central bank said last week, suggesting increased liquidity injections have gained some traction in lowering borrowing costs.

Money supply growth was also markedly weak, in further evidence that companies are reluctant to make fresh investments as US tariffs on Chinese goods add to uncertainties about the demand outlook at home.

China's economic growth slowed to 6.5 per cent in Q3, its slowest pace since the global economic crisis, and pressures will build sharply from January year when higher US duties are due to take effect.

Broad M2 money supply grew 8.0 per cent in October from a year earlier - matching a record low hit this June. Analysts had expected M2 to rise 8.4 per cent, edging up from September.

M1 money supply rose just 2.7 per cent on-year, the weakest pace since January 2014.

Outstanding yuan loans grew 13.1 per cent from a year earlier, below expectations and easing from September's rise.

New bank loans in the first 10 months of 2018 totalled 13.84 trillion yuan, up 17 per cent from a year earlier and eclipsing last year's full-year record of 13.53 trillion yuan.

But growth of China's outstanding TSF slowed to 10.2 per cent from a year earlier, again an all-time low, central bank data showed.

In October, the TSF, a broad measure of credit and liquidity in the economy, fell to 728.8 billion yuan from 2.21 trillion yuan in September. REUTERS