China’s banks extend record loans as companies borrow more
CHINESE banks extended a record amount of new loans in January after authorities prodded them to lend more to businesses, though consumer borrowing remained subdued.
Financial institutions offered 4.9 trillion yuan (S$957 billion) of new loans last month, higher than the 4.2 trillion yuan estimated by economists, and compared with a record 3.98 trillion yuan a year ago.
That pushed the broad measure of credit — aggregate financing — to 5.98 trillion yuan in January, the People’s Bank of China (PBOC) said on Friday (Feb 10), above economists’ estimates. The M2 measure of money supply rose 12.6 per cent from a year earlier, the fastest pace since April 2016.
Banks tend to boost lending at the start of the year since they have abundant loan quotas to tap and they prefer to lend early to reap more profit. Loan growth was even stronger this year after the central bank and banking regulator urged lenders to “front-load” credit extension as part of the government’s efforts to turn the economy around.
The data showed a surge in loans to companies and a rebound in corporate bond issuance. While consumers took out more loans than in December, their demand for financing plunged from a year earlier.
“An interesting divergence between corporate and household loans,” said Zhiwei Zhang, president and chief economist of Pinpoint Asset Management. “Corporate loan demand improved quickly as domestic demand rebounded particularly in the service sector. But the unemployment rate is still high, which keeps household confidence weak.”
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The pickup in credit may be a sign of a recovery in some sectors following the abandoning of the Covid Zero policy. The latest purchasing managers’ surveys showed manufacturing and services activity expanded for the first time in four months, while travel and spending climbed over the Chinese New Year holiday.
With consumer lending remaining subdued and the property market yet to recover, the People’s Bank of China will likely stick to its supportive monetary policy stance, economists said.
“Even though consumption growth may recover to pre-pandemic levels in 2023, support from financial and other policies is still needed to orderly expand consumer loan scales, lower the costs of the financing and boost households’ ability and willingness to consume,” said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle.
The PBOC is expected to keep policies accommodative in the near term in terms of liquidity injection and credit supply to solidify the recovery, even though chances for an imminent rate cut should have declined, Citigroup economists led by Yu Xiangrong wrote in a note.
The central bank started from January to include credit extension by consumer finance providers, wealth-management firms and financial asset investment companies in the calculation of the aggregate financing data. Total lending provided by the three types of institutions stood at 841 billion yuan, the PBOC said, which is less than 0.4 per cent of outstanding yuan loans as of the end of last month.
Key highlights of the data:
New mid- and long-term lending provided to companies was 3.5 trillion yuan last month, almost triple the amount in December. New corporate bond issuance also rebounded, adding 148.6 billion yuan after a contraction of 488.7 billion yuan in the previous month.
Net bond financing by the government increased to 414 billion yuan in January from 281 billion yuan in the previous month, although it was below the 603 billion yuan seen a year ago. The Ministry of Finance handed out partial 2023 special bond quotas last year to some regions for an early issuance in January to fund infrastructure investment, a key driver of economic growth.
New household medium and long-term loans, a proxy for mortgages, came in at 223 billion yuan, compared with 185 billion yuan in December and 742 billion yuan a year ago. Despite an increase in government support for the property market, demand for housing remains subdued because of sliding home prices and weak growth in household incomes.
Short-term lending to households, which includes consumption loans, was 34.1 billion yuan, down from 100.6 billion yuan a year ago. To lure customers to their retail loan offerings, Chinese banks are offering preferential interest rates and incentives such as gift cards. BLOOMBERG
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