China August new bank loans rise to $189.5 billion, miss forecast

New bank lending in China rose less than expected in August from a nine-month low seen in the previous month, as investors debate over whether more stimulus is needed to shore up slowing economic growth.

Chinese banks extended 1.22 trillion yuan ($189.5 billion) in new yuan loans in August, up from July but falling short of analysts’ expectations, according to data released by the People’s Bank of China on Friday.

Analysts polled by Reuters had predicted new yuan loans would rise to 1.30 trillion yuan from 1.08 trillion yuan the previous month and against 1.28 trillion yuan a year earlier.

“The credit data is not very good,” said Zhou Hao, an economist at Commerzbank in Singapore.

Economic data in recent months have shown China’s robust post-COVID recovery is losing steam as growth returns to more normal levels and fresh virus outbreaks disrupt activity. But authorities are trying to maintain broader growth while reining in riskier areas such as the property sector.

Some analysts said slowing credit growth indicated weakening financing demand from companies as the economy slows.

Household loans, mostly mortgages, rose to 575.5 billion yuan from 405.9 billion yuan in July, while corporate loans rose to 696.3 billion yuan from 433.4 billion yuan, central bank data showed.

Some major Chinese banks had stepped up lending toward the end of August and reduced a backlog in property loans after being advised by the central bank to increase loan quotas for the month, two sources told Reuters

However, unexpectedly strong August trade data this week and recent comments from central bank officials have cooled market expectations for more aggressive, imminent policy easing.

Other closely watched credit gauges also eased. Broad M2 money supply grew 8.2 per cent from a year earlier, the slowest pace since April and below estimates of 8.4 per cent in the Reuters poll. M2 grew 8.3 per cent in July.

Outstanding yuan loans grew 12.1 per cent from a year earlier, the weakest since the early days of sweeping pandemic lockdowns in early 2020 and compared with 12.3 per cent in July.

Growth of outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, slowed to 10.3 per cent in August from a year earlier, the lowest since December 2018, and from 10.7 per cent in July.

“With the PBOC now shifting gears to a slightly more supportive stance, we think credit growth may level off in the coming quarters. But the usual lags mean that tight credit conditions will remain a headwind to economic activity in the near-term,” Capital Economics said in a note.

“We expect additional RRR (bank reserve requirement) and policy rate cuts as the PBOC seeks to push down borrowing costs. This easing bias means that credit growth will probably level off before long.

“That said, we do not expect a sharp rebound.”

In July, the PBOC cut the reserve requirement ratio (RRR) for banks, releasing around 1 trillion yuan in long-term liquidity, and many analysts expect another reduction later this year.

Zhou at Commerzbank said the central bank is more likely to cut its benchmark lending rate, or loan prime rate (LPR), but did not given a timeframe.

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

In August, TSF jumped to 2.96 trillion yuan from 1.06 trillion yuan in July. Analysts polled by Reuters had expected August TSF of 2.75 trillion yuan.

China kicked off on Friday a long-awaited scheme, called Wealth Management Connect, that links its southern province of Guangdong with Hong Kong and Macau, as Beijing moves to pull the two territories closer.

The cross-boundary scheme will initially bring combined fund flows of 300 billion yuan ($46.53 billion) in the three areas together known as the Greater Bay Area (GBA), the Hong Kong Monetary Authority (HKMA) said.

“The scheme will not only offer more investment options for individual GBA investors but also create new opportunities for the banking and wealth management industry in the three places,” HKMA chief executive, Eddie Yue, said in a statement.

It will also promote cross-border use of the Chinese currency, strengthening Hong Kong’s role as the global hub for offshore yuan, Yue added.

Twenty Hong Kong banks have expressed interest in participating, said HKMA’s deputy chief executive Edmond Lau.

“If the scheme proves popular we could increase the quotas so regulators will have a pragmatic approach,” he told a media briefing.

Global banks and asset managers hailed the launch.