New bank loans in China fall more than expected amid housing jitters

100 yuan bills in a counting machine

Chinese 100 yuan banknotes are seen in a counting machine as a clerk counts them at a branch of a commercial bank in Beijing, China. REUTERS/Kim Kyung-Hoon/File Photo

BEIJING — New bank lending in China fell more than expected in July, while overall credit growth slowed as further COVID surges, job concerns and a deepening housing crisis made businesses and consumers reluctant to take on more debt.

Chinese banks extended 679 billion yuan ($101 billion) of new yuan-denominated loans in July, less than a quarter of the amount in June and below analysts’ expectations, according to data released Friday by the People’s Bank of China. (PBOC).

“Credit growth fell last month as jitters in the housing market weighed on bank lending,” Capital Economics said in a note. “This could continue to disappoint in the near term as homebuyer sentiment is expected to remain weak and government borrowing is set to slow.”

Analysts polled by Reuters had predicted new yuan lending would fall to 1.1 trillion yuan in July, from 2.81 trillion the previous month and 1.08 trillion a year earlier.

Household loans, including mortgages, fell to 121.7 billion yuan in July from 848.2 billion in June, while corporate loans fell to 287.7 billion yuan from 2.210 billion.

China’s economy slowed sharply in the second quarter as widespread lockdowns weighed on demand and business activity, while the housing market swung from crisis to crisis.

China’s top leaders recently signaled they were poised to miss the government’s growth target of around 5.5% for 2022, which analysts said looked increasingly out of reach.

The PBOC reiterated that it would intensify the implementation of its prudent monetary policy and maintain reasonably adequate liquidity, while closely monitoring changes in domestic and external inflation, it said in its report on the Politics.

But few China-watchers now expect benchmark lending rate cuts, which could increase the risk of capital flight as other major central banks hike rates sharply to combat the surge in inflation.

Stalled projects

In the real estate market, a growing number of home buyers have threatened to stop paying mortgages on hundreds of stalled projects. While regulators have urged banks to help provide funds to bridge the funding gap for developers, confidence in the sector remains fragile.

Data firm China Beige Book International, which conducts monthly surveys of more than 1,000 companies, said there was a sharp drop in demand for credit in July from manufacturing and service companies, with an uptick in retail, which she attributed largely to fears of more lockdowns.

Some analysts point to a recent glut of liquidity in interbank money markets as a further sign of weakening credit demand.

M2 broad money supply rose 12% in July from a year earlier, central bank data showed, above Reuters poll estimates of 11.4%.

Outstanding yuan loans rose 11% from 11.2% in June. Analysts had expected growth to be unchanged from June.

Growth in the total stock of social finance (TSF), a broad measure of credit and liquidity in the economy, slowed to 10.7% in July from 10.8% in June.

The TSF includes forms of off-balance sheet financing that exist outside of the conventional bank lending system, such as initial public offerings, trust company loans, and bond sales.

In July, the TSF fell to 756.1 billion yuan from 5.17 trillion in June. Analysts polled by Reuters had expected a July TSF of 1.3 trillion yuan.

Local governments issued a net amount of 3.41 trillion yuan in special bonds in the first six months – part of the 2022 special bond quota of 3.65 trillion, according to data from the Ministry of Finance, while that the authorities were seeking to accelerate infrastructure spending.

Sources told Reuters that China plans to advance some 2,023 local special bond quotas in the fourth quarter.

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