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July new loans disappointed, reflecting weak demand
By Tao Dong |
August 14, 2012, Tuesday
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Print Edition
Print Edition
BANKS lent out only 540.1 billion yuan (US$84.8 billion) of new loans in China in July, much weaker than the market's expectation of a 700-billion-yuan increase. Earlier, news reports of weaker-than-expected lending by the big four banks had already tweaked down market expectations, but the actual figures still undershot these.
It has been our view that the strong new loan growth in May and June was not likely to be sustainable due to the lack of qualified local government projects and the one-off nature of the central government and bank funding, but the weak July data still surprised us on the downside.
With growth still slow, we think the government will continue strengthening its efforts to launch investment projects to cushion the pace of growth. But that said, the disappointing July new loan data do cast a doubt on the strength of the government's easing efforts, and also reflect the sluggish loan and investment demand in the private sector.
Of the total new lending in July, about 184 billion yuan (34 percent) was retail loans, while 355.8 billion yuan (66 percent) was corporate loans.
In terms of the corporate loans, the proportion of discounted bills rose again to 152.6 billion yuan (from 34 billion yuan in June), while that for short-term corporate loans dropped to 95.4 billion yuan (from 417 billion yuan in June). Corporate medium- to long-term loans disappointed, falling again to 92 billion yuan in July (from 163 billion yuan before).
We think the sharp moderation in corporate medium- to long-term and short-term lending is a concern. It casts a doubt over the sustainability of the government's infrastructure projects, and may have reflected the banks' reduced eagerness to lend even for short-term financing purposes.
One factor to bear in mind, however, is that July is the beginning of the third quarter, and hence new lending demand could have been affected by a rush to lend in June (end of the second quarter). It is possible that new lending could be better in August or September, as the banks work to meet their third-quarter lending quota.
The article was based on a research note issued on August 10. The opinions are his own.
It has been our view that the strong new loan growth in May and June was not likely to be sustainable due to the lack of qualified local government projects and the one-off nature of the central government and bank funding, but the weak July data still surprised us on the downside.
With growth still slow, we think the government will continue strengthening its efforts to launch investment projects to cushion the pace of growth. But that said, the disappointing July new loan data do cast a doubt on the strength of the government's easing efforts, and also reflect the sluggish loan and investment demand in the private sector.
Of the total new lending in July, about 184 billion yuan (34 percent) was retail loans, while 355.8 billion yuan (66 percent) was corporate loans.
In terms of the corporate loans, the proportion of discounted bills rose again to 152.6 billion yuan (from 34 billion yuan in June), while that for short-term corporate loans dropped to 95.4 billion yuan (from 417 billion yuan in June). Corporate medium- to long-term loans disappointed, falling again to 92 billion yuan in July (from 163 billion yuan before).
We think the sharp moderation in corporate medium- to long-term and short-term lending is a concern. It casts a doubt over the sustainability of the government's infrastructure projects, and may have reflected the banks' reduced eagerness to lend even for short-term financing purposes.
One factor to bear in mind, however, is that July is the beginning of the third quarter, and hence new lending demand could have been affected by a rush to lend in June (end of the second quarter). It is possible that new lending could be better in August or September, as the banks work to meet their third-quarter lending quota.
The article was based on a research note issued on August 10. The opinions are his own.
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