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Loan numbers bring cheers as credit flows into economy
By Stephen Green |
October 16, 2012, Tuesday
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Print Edition
Print Edition
THOSE looking for signs that all of China's new infrastructure projects are getting financed may have been disappointed with September's loan growth of only 623 billion yuan (US$98 billion), against the market's consensus expectations of around 700 billion yuan. However, we think the September monetary data should actually bring some cheer. Three cheers, in fact.
Medium- and long-term loan growth of 470 billion yuan was the strongest since January 2011. Longer-term loan growth accelerated a little to 10.3 percent year-on-year. This is slow, to be sure, but still good news.
Overall loan growth in real terms (adjusted for inflation) continued to strengthen to around 17 percent year-on-year. We have long argued that real loan growth is worth tracking given that credit has purchasing power, and as inflation has fallen, more can be bought for the same amount of credit.
Non-bank credit growth was strong. The third quarter was the strongest quarter ever for bond issuance, at 735 billion yuan; entrustment loans (corporate-to-corporate loans, intermediated by banks), as well as trust company lending, also neared historical highs for the quarter.
Moreover, growth in "total social finance," appears to have turned up to 19 percent year-on-year in the third quarter of this year after a long period of deceleration.
One of the big worries that clients have is whether all of China's new infrastructure projects are getting financed. We know from speaking to commercial banks that the answer is, "some are."
Looking supportive
The latest money numbers support this view. It is not a "big bang" of financing, but it looks supportive nonetheless. This will not solve the economy's structural problems or make fears about non-performing loans go away.
Some of this "new" lending may also be the result of interest owed being added to the capital of distressed loans, though we find it hard to believe that this has significant scale.
Remember, new loan growth is based on the concept of net outstanding loans, so even if loans are not being repaid, more credit overall is still being injected into the economy. Credit growth is a prerequisite for short-term growth. All in all, then, three cheers for the September monetary numbers.
Medium- and long-term loan growth of 470 billion yuan was the strongest since January 2011. Longer-term loan growth accelerated a little to 10.3 percent year-on-year. This is slow, to be sure, but still good news.
Overall loan growth in real terms (adjusted for inflation) continued to strengthen to around 17 percent year-on-year. We have long argued that real loan growth is worth tracking given that credit has purchasing power, and as inflation has fallen, more can be bought for the same amount of credit.
Non-bank credit growth was strong. The third quarter was the strongest quarter ever for bond issuance, at 735 billion yuan; entrustment loans (corporate-to-corporate loans, intermediated by banks), as well as trust company lending, also neared historical highs for the quarter.
Moreover, growth in "total social finance," appears to have turned up to 19 percent year-on-year in the third quarter of this year after a long period of deceleration.
One of the big worries that clients have is whether all of China's new infrastructure projects are getting financed. We know from speaking to commercial banks that the answer is, "some are."
Looking supportive
The latest money numbers support this view. It is not a "big bang" of financing, but it looks supportive nonetheless. This will not solve the economy's structural problems or make fears about non-performing loans go away.
Some of this "new" lending may also be the result of interest owed being added to the capital of distressed loans, though we find it hard to believe that this has significant scale.
Remember, new loan growth is based on the concept of net outstanding loans, so even if loans are not being repaid, more credit overall is still being injected into the economy. Credit growth is a prerequisite for short-term growth. All in all, then, three cheers for the September monetary numbers.
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