China Feb new bank loans dip more than expected, lending growth at record low

New bank lending in China fell more than expected in February from a record high the previous month, even as the central bank seeks to spur sluggish economic growth and fight deflationary pressures.

Chinese banks extended 1.45 trillion yuan ($201.5 billion) in new yuan loans in February, according to Reuters calculations based on data released by the People’s Bank of China, down sharply from January and falling short of analysts’ expectations.

Outstanding yuan loans grew 10.1% from a year earlier – the lowest on record – compared with 10.4% growth in January. Analysts had expected 10.2%.

A pull-back in February from January was widely expected, because Chinese banks tend to front-load loans at the beginning of the year to get high-quality customers and win market share.

The timing of the week-long Lunar New Year holiday, which fell in February this year versus late January in 2023, may also have weighed on lending activity last month.

Analysts polled by Reuters had predicted new yuan loans would fall to 1.50 trillion yuan in February from 4.92 trillion yuan the previous month and against 1.81 trillion yuan a year earlier.

“Aggregate financing and new loans came in weaker than expected amid limited high-quality borrowing demand, showing the limited immediate impact of February’s cut in the required reserve ratio,” analysts at ING said in a note.

“Although the PBOC has signalled further RRR cuts to come, a lack of high-quality borrowing demand could limit the effectiveness of RRR cuts in stimulating the economy.”

Chinese banks made 6.37 trillion yuan in new yuan loans in the first two months of 2024, data released by the central bank showed on Friday.

It did not give loan figures for February alone.

Household loans, mostly mortgages, contracted by 590.7 billion yuan in February, according to Reuters calculations based on central bank data, after rising 980.1 billion yuan in January, while corporate loans fell to 1.57 trillion yuan from 3.86 trillion yuan.

China has set an economic growth target for 2024 of around 5%, which many analysts say will be a challenge to achieve without much more stimulus. Consumer and corporate confidence has been persistently weak since a post-pandemic bounce quickly fizzled out early in 2023.

PBOC Governor Pan Gongsheng told a news conference last week that there is still room for cutting RRR, following a 50-basis point cut that was effective from Feb. 5, which was the biggest in two years.

Last month, the PBOC announced its biggest ever reduction in a key mortgage reference rate, in a bid to prop up the struggling property market and overall economy.

Broad M2 money supply grew 8.7% from a year earlier, below estimates of 8.8% forecast in the Reuters poll but in line with January’s pace.

BROAD CREDIT GROWTH SLOWS

Growth of outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, slowed to 9.0% in February from a year earlier and from 9.5% in January.

Any acceleration in government bond issuance could help boost total social financing (TSF), a broad measure of credit and liquidity. Outstanding TSF was 9.5% higher at the end-January than a year earlier, the same as that at end-December.

China has set the 2024 quota for local government special bond issuance at 3.9 trillion yuan, up from 3.8 trillion yuan last year. China also plans to issue 1 trillion yuan in special ultra-long term treasury bonds to support some key sectors

“Increased fiscal support should lead to a reacceleration in government borrowing before long. But the headwinds from weak private sector credit demand clearly remain severe,” Capital Economics said in a note.

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

In February, TSF fell to 1.56 trillion yuan from 6.5 trillion yuan in January. Analysts polled by Reuters had expected February TSF of 2.22 trillion yuan.
Source: Reuters (Reporting by Judy Hua and Kevin Yao; Editing by Kim Coghill)