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October 19, 2016

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New yuan lending surges on mortgages

CHINESE banks extended 1.22 trillion yuan (US$181 billion) in new loans in September, driven by a credit-fueled property boom.

The amount of net new yuan loans exceeded analysts’ expectations of 1 trillion yuan and it was also up from 948.7 billion yuan extended in August, the People’s Bank of China said in a release yesterday.

Mortgages in September came in at 475.9 billion yuan, a jump of 76 percent from the same period of last year.

“Household loans remained sizeable, suggesting mortgage drawdown was still strong,” wrote Raymond Yeung and David Qu, analysts at Australia and New Zealand Banking Group.

“But loan growth may cool in the fourth quarter as more local governments tighten the housing market, and the central bank and banking regulator are tracking the mortgage activities of banks closely.”

Much of the loan growth in recent months has been driven by a rapid rise in home mortgages, as China’s sizzling housing market drives a buying frenzy that authorities are now trying to clamp down on without triggering a price collapse.

China’s credit growth has been “very fast” by global standards, and without a comprehensive strategy to tackle the debt overhang there is a growing risk it will have a banking crisis or sharply slower growth or both, the International Monetary Fund said in a working paper last week.

Banks have been asked to stop lending to property developers for land purchases, and to scrutinize individual borrowers who divorce too quickly in order to apply for mortgages after the PBOC issued guidelines on recent credit risks to the property market, Shanghai Daily reported previously.

“Against this backdrop, the room for the PBOC to further cut interest rates or the reserve requirement ratio this year is limited. As such, we remove our call for one more interest rate cut and one more RRR cut through the rest of this year,” analysts at Nomura said in a note yesterday.

M1 money supply, which includes cash and short-term deposits, rose 24.7 percent in September from a year earlier, versus August’s 25.3 percent gain.

Broad M2 money supply added 11.5 percent in September from a year earlier, up from 11.4 percent in August.

A widening gap between M1 and M2 growth has fueled concerns about a “liquidity trap” in the economy where companies remain wary of investing regardless of how much stimulus policy-makers pump into the system.

Total social financing, a broad measure of credit and liquidity in the economy, rose to 1.72 trillion yuan in September from 1.47 trillion yuan in August.

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

Loans over the first nine months of the year were a record 10.16 trillion yuan, according to central bank data.


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