UPDATE 3-China's July new loans fall to 8-month low as curbs bite

* Most loan/money data weaker than June but still firm y/y

* Adds to views economy will start to cool soon

* July new loans 825.5 bln yuan, vs f’cast 800 bln yuan

* M2 money supply up 9.2 pct y/y, vs f’cast 9.4 pct

* TSF 1.22 trln yuan, vs June’s 1.78 trln yuan

* Loan growth slowing but likely to stay high - analysts (Updates with Moody’s analyst comment)

By Fang Cheng and Kevin Yao

BEIJING, Aug 15 (Reuters) - China’s new loans in July fell to their lowest in 8 months due to property curbs that have cooled mortgage lending and seasonal factors, reinforcing views that its economic growth will start to cool slightly in coming months.

Beijing is trying to reduce financial risks by containing rising debt and defusing property bubbles amid fears they could derail the world’s second-largest economy if not handled well, but policymakers are treading warily ahead of a key party meeting later this year. Chinese banks extended 825.5 billion yuan ($123.7 billion) in net new yuan loans last month - the lowest since November 2016 and down from 1.54 trillion yuan in June. But that was still above the 800 billion yuan expected by analysts in a Reuters poll.

Analysts say July loans indicate that banks moved some of their riskier shadow credit back onto their books in response to tighter regulations.

The global experience suggests China’s current rapid credit growth is “dangerous”, the International Monetary Fund said on Tuesday, urging Beijing to accelerate reforms.

“This shows that banks are giving more support to the real economy as loans go back to the normal channel - in line with the direction of financial regulations”, said Wen Bin, senior analyst at Minsheng Bank in Beijing.

July lending is traditionally weak but last month’s level was still 49 billion yuan higher than the average of July figures between 2014 and 2016, according to Reuters calculations based on central bank data.

Broad M2 money supply (M2) in July grew 9.2 percent from a year earlier - the slowest since records began in 1996, central bank data showed, missing forecasts for an expansion of 9.4 percent and compared with June’s 9.4 percent.

China’s central bank has said that the slowing M2 growth could be a “new normal” due to the stepped-up crackdown on risky shadow lending activities.

Household loans, mostly mortgages, fell to 561.6 billion yuan in July from 738.4 billion yuan in June, according to Reuters calculations based on the central bank’s data.

But household loans as a proportion of total new loans rose to 68 percent, from 48 percent in June, suggesting banks were more exposed to the property market, which showed marked signs of cooling in July.

Medium- and long-term corporate loans jumped 67.5 percent in January-July from the same year-ago period, according to Reuters calculations based on the central bank data.

In spite of regulators’ efforts to reduce high debt ratios in the economy, ANZ Research said in a report: “Loan growth is likely to stay high over the next few months, given a strong infrastructure pipeline and improving corporate profits.”

Economists believe Beijing will handily meet its 2017 growth target of around 6.5 percent after a surprisingly strong expansion of 6.9 percent in the first half of the year, fuelled in part by record bank lending in 2016.

But most China watchers expect activity will slow slightly in coming months as signalled by a raft of data for July, mainly as higher financing costs and government measures to cool the heated property market dent economic output.

Average lending rates rose 14 basis points in the second quarter to 5.67 percent, following a 26 bps rise in the first quarter, the central bank said on Friday.


Total social financing (TSF), a broad measure of credit and liquidity in the economy, fell around a third in July to 1.22 trillion yuan from 1.78 trillion yuan in June. But economists at BofA Merrill Lynch estimated TSF still grew 13.2 percent from a year earlier, suggesting authorities do not want to tap on the brakes too hard and risk a sharper economic slowdown.

Combined trust loans, entrusted loans and undiscounted banker’s acceptances, which are common forms of shadow banking activity, fell by 64.4 billion yuan in July, according to Reuters calculations.

The central bank will strike a balance between deleveraging and maintaining stable liquidity, it said in the latest quarterly policy report that underscored policymakers’ efforts to keep the economy on an even keel.

“Due to more stringent regulation on shadow banking, credit flows are being increasingly sustained by formal bank lending and lending by the better-regulated parts of the shadow banking sector, such as trust companies. Bank loan pricing is gradually rising,” said Yulia Wan, an analyst at rating agency Moody’s.

The PBOC is unlikely to tighten policy further in the second half of this year, which could cap rises in market interest rates, a central bank adviser was quoted as saying by the state-run China News Service on Tuesday.

“While we think the PBOC is now done tightening monetary policy, we expect market rates to remain elevated enough to keep credit growth slowing,” said Julian Evans-Pritchard at Capital Economics.

Outstanding yuan loans at the end of July grew 13.2 percent from a year earlier, faster than economists’ expectations of 13 percent and above June’s 12.9 percent. (Additional reporting by Engen Tham in Shanghai; Editing by Shri Navaratnam and Jacqueline Wong)