Chinese bank lending unexpectedly surges in May, but broad credit growth slows

The Chinese national flag flies at half mast at the headquarters of the People’s Bank of China, the central bank (PBOC), as China holds national mourning for those who have died of coronavirus disease (COVID-19), at the grave de Qingming – sweeping festival in Beijing, China on April 4, 2020. REUTERS / Carlos Garcia Rawlins

China’s new bank loans rose unexpectedly in May from the previous month, but overall credit growth continued to slow as the central bank seeks to contain rising debt in the world’s second-largest economy .

Key Chinese leaders have repeatedly vowed to avoid any sharp political shift, to keep borrowing costs low, and to ask banks to maintain their support for small businesses, while being more vigilant about the granting credit to hot sectors of the economy such as real estate.

“The peak of the credit cycle must be over, but the downward slope appears to be smoother than expected,” said Luo Yunong, bond analyst at Industrial Securities.

Chinese banks granted 1.5 trillion yuan ($ 234.76 billion) in new yuan loans in May, up from 1.47 trillion yuan in April and exceeding analysts’ expectations of 1.41 trillion yuan, according to data released Thursday by the People’s Bank of China (PBOC).

The tally was also higher than the 1.48 trillion yuan issued in the same month a year earlier, when policymakers implemented unprecedented measures to deal with the shock of the coronavirus crisis.

Loans to households jumped to 623.2 billion yuan in May from 528.3 billion yuan in April, while loans to businesses reached 805.7 billion yuan last month from 755.2 billion yuan in April. April.

As expected, growth in outstanding yuan loans slowed to 12.2% year-on-year, the slowest pace since February 2020, and from 12.3% in April. Excluding this early 2020 period, this is the slowest growth since 2002, according to Capital Economics.

The broad M2 money supply increased 8.3% from the previous year, above the estimate of 8.1% predicted in the Reuters poll and matching the April pace.

In 2020, the central bank encouraged banks to lower rates for companies infected with the virus and to extend loan payment terms for small businesses, among other measures, to give borrowers a break during the coronavirus crisis. .

But with the economy returning to pre-pandemic levels, policymakers are now looking to slowly ease emergency measures and slow credit growth to contain debt risks, without hampering the recovery.

PBOC Governor Yi Gang said on Thursday inflation was “mostly under control” and monetary policy would remain stable, in comments a day after data showed the fastest rise in ex-factory prices in more than 12 years. Read more

Growth in total social finance outstanding (TSF), a general measure of credit and liquidity in the economy, slowed to 11% in May, the weakest pace since February 2020, and from 11.7% in May. % in April.

Analysts attributed the weaker growth of the TSF to slowing corporate and government bond issuance and a contraction in shadow credit, which could hamper economic growth in the future.

“The slowdown in credit growth is happening even faster than we anticipated a few months ago,” said Julian Evans-Pritchard of Capital Economics in a note.

“While the economy has so far held up very well to the withdrawal of political support, the usual lags mean that weaker credit growth will become a growing barrier to activity in the coming quarters.”

TSF includes forms of off-balance sheet financing that exist outside the conventional bank lending system, such as initial public offerings, trust company loans, and bond sales.

The TSF rose to 1.92 trillion yuan in May from 1.85 trillion yuan in April, but fell short of expectations. Analysts polled by Reuters had expected a TSF of 2,000 billion yuan in May.

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