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December 12, 2017

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Chinese banks extend record US$169b loans

BANK lending in China hit a fresh record after a much stronger-than-expected surge in credit in November while authorities step up efforts to reduce risks in the financial system from a rapid build-up in debt.

Chinese banks extended 1.12 trillion yuan (US$169.27 billion) in net new yuan loans in November, data from the People’s Bank of China showed yesterday, well above analysts’ expectations.

Analysts polled by Reuters had predicted new yuan loans would rise to 800 billion yuan, from October’s 663.2 billion yuan. The November figure was well above the highest forecast in the poll.

“New loans exceeded expectations due to strong corporate financing demand, with medium- and long-term corporate and household loans expanding sharply,” Zheng Lianghai, an analyst at Caitong Fund Management said.

Analysts also attributed the jump in new loans to an ongoing regulatory crackdown on off-balance sheet lending, which is forcing banks to issue more formal loans, and to a recent rout in China’s bond markets which has made it tougher for companies to raise money by issuing bonds.

The November credit splurge brought China’s total new lending so far this year to 12.94 trillion yuan, more than Italy’s GDP and exceeding 2016’s record 12.65 trillion yuan with one month left to go.

China is in the second year of a campaign to contain and reduce systemic threats to its financial system, with the central bank keeping liquidity tight as it seeks to flush out speculative financing and force growth-obsessed local governments to keep their debt levels under control.

Still, the world’s second-largest economy remains heavily reliant on credit, and analysts agree more painful structural reforms are needed on top of current efforts to force banks and companies to cut debt levels.

Regulators unveiled sweeping new rules last month for the asset management industry to discourage riskier practices. They also started targeting micro loans in a bid to curb short-term household debt, which is low but rising rapidly.

Household loans, mostly mortgages, rose to 620.5 billion yuan in November from 450.1 billion yuan in October, according to Reuters calculations based on the PBOC’s data.

Household loans took up 55 percent of total new loans last month, down from 68 percent in October.

Corporate loans surged to 522.6 billion yuan in November from 214.2 billion yuan a month earlier.

Broad M2 money supply in November grew 9.1 percent from a year earlier, beating forecasts for a growth of 8.9 percent and rising from 8.8 percent in October, which was the slowest pace since records began in 1996.

The PBOC has said a slowdown in M2 growth could be a “new normal” due to official deleveraging efforts in the financial system and has urged markets not to read too much into the cooler growth.

Authorities are walking a fine line, however, as they try to curb risks without pushing borrowing costs too high, which could slow economic growth and roil financial markets.

China’s push to cut risks has forced several sell-offs in bonds already this year.


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