China's May bank loans, money supply growth quicken

[BEIJING] China's banks made 900.8 billion yuan (S$195.6 billion) worth of new loans in May, in line with market expectations, while broad money supply growth quickened as the central bank loosens policy to support the slowing economy.

Economists polled by Reuters had expected new local-currency loans of 900 billion yuan in May, compared with 707.9 trillion yuan in April.

Broad M2 money supply (M2) rose 10.8 per cent from a year ago, exceeding market expectations of 10.5 per cent and accelerating from April's 10.1 per cent pace, the People's Bank of China (PBOC) said.

Outstanding loan growth was 14 per cent in May.

Analysts polled by Reuters had expected outstanding loans to grow by 13.9 per cent, slightly below the April reading of 14.1 per cent.

Total social financing (TSF), a broader measure of overall liquidity in the economy, was 1.22 trillion in May, compared with 1.05 trillion yuan in April.

Analysts have been waiting to see if the May money supply figures would show any sign of rebounding, following last month's figure which showed M2 year-on-year growth at a record low.

Signs of persistent disinflationary risks have worried economists. Many had expected the central bank's easing measures - including three interest rate cuts since November 2014 - to show up more quickly in the money and inflation data.

Some observers, including the International Monetary Fund, have suggested that if growth momentum remains weak China may need to step up fiscal support as a more direct way to boost activity.

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.

In the meantime, the People's Bank of China is also experimenting with different monetary tools to more directly target longer term borrowing costs, which have remained stubbornly high this year.

The central bank has confirmed that it had lowered the interest rate charged on loans provided under its pledged supplementary lending (PSL) program. PSL loans are typically longer duration than the credit provided under the central bank's other new lending facilities.

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.

REUTERS