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July 13, 2017

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June sees rise in new yuan loans

CHINESE lenders extended more credit than expected in June, as home lending stayed buoyant while a clampdown on shadow financing activities forced banks to shift more loans onto their books.

The government has tightened the screws on financial risks due to an explosive growth in debt but has injected substantial liquidity at times to avoid a crunch and maintain stability.

The stronger-than-expected loans suggest authorities are keeping up support for the real economy, even as they tighten regulations to force banks to deleverage, said Nie Wen, an economist at Hwabao Trust in Shanghai. “The shadow banking sector is shrinking but credit for the real economy remains strong,” he said.

Chinese banks extended 1.54 trillion yuan (US$227 billion) in net new yuan loans last month, well above analysts’ expectations of 1.2 trillion yuan, up from 1.11 trillion in May.

Liu Dongliang, a senior analyst at China Merchants Bank, attributed the loan expansion to a pickup in home sales in smaller cities and credit demand from companies.

Home mortgages reached 483.3 billion yuan in June, the second-highest so far this year, despite purchase restrictions in first and second-tier cities.

“A boom in the real estate market in the smaller cities supported investment in property and would help sustain economic growth in the second half,” Liu said.

Household loans, mostly mortgages, rose to 738.4 billion yuan in June from 610.6 billion yuan in May, according to calculations based on the central bank’s data.

Household loans accounted for 48 percent of new loans last month, down from May’s 55 percent.

Broad M2 money supply, which includes demand deposits and monies held in easily accessible accounts, grew 9.4 percent in June from a year earlier, slowing from 9.6 percent in May, data showed. Economists expected 9.5 percent growth.

“Slow M2 growth indicated tight financial regulation to control expansion of off-balance sheet financing,” Liu said, adding that overall liquidity remained sound but small businesses may see higher funding costs.

Last month, the central bank attributed slower M2 growth to lower internal leverage within the financial system under tighter regulations to control risk.

The slower M2 growth, it said, could be a “new normal” after May’s reading was the slowest since records began in 1996. Financial support for the real economy was solid as indicated by strong lending and total social financing, the central bank said.

Growth in outstanding yuan loans was flat at 12.9 percent at the end of June, although faster than forecasts of 12.7 percent.

Total social financing, the broadest measure of credit supply that includes loans, bank acceptance bills, corporate bonds and equity financing, rose to 1.78 trillion yuan in June from 1.06 trillion yuan in May, the central bank’s data showed.

The effects of the government’s multi-pronged crackdown are showing up in weakened off-balance sheet financing, or shadow banking activity.

Combined trust loans, entrusted loans and undiscounted bankers’ acceptances, which are common forms of shadow banking activity, dipped to 428.8 billion yuan in the second quarter from 2.05 trillion yuan in the first quarter, according to Reuters calculations.

In the first six months, central bank data showed new yuan loans of 7.97 trillion yuan, up 436.2 billion yuan from the same period of last year. Total social financing rose 1.36 trillion yuan year on year to 11.17 trillion yuan in the first half.

At its quarterly monetary policy committee meeting, the central bank reiterated it would continue to implement a prudent and neutral monetary policy and keep liquidity basically stable.

China’s banks extended a record 12.65 trillion yuan in loans in 2016 as the government encouraged credit-fueled stimulus to meet its economic growth target.

The credit explosion has stoked worries about risks from a rapid build-up in debt, which authorities pledge to contain.


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