May 11, 2020 / 8:39 AM / 14 days ago

UPDATE 2-China April new bank loans fall less than expected, more easing on cards

* April new loans 1.7 trln yuan vs f’cast 1.4 trln yuan

* April M2 money supply +11.1% y/y, vs f’cast of +10.2%

* April TSF 3.09 trln yuan, vs f’cast 2.65 trln yuan

* C.bank ramps up policy support for virus-ravaged economy (Adds analyst comment, context)

By Judy Hua and Kevin Yao

BEIJING, May 11 (Reuters) - New bank lending in China fell less than expected in April from the previous month while growth of broad money supply quickened, as the central bank ramped up policy support for the coronavirus-ravaged economy.

Further monetary easing steps are also expected as the central bank has pledged to keep liquidity ample and lower borrowing costs, although Beijing is likely to rely on fiscal stimulus to revive growth. Chinese banks extended 1.7 trillion yuan ($240.05 billion) in new local-currency loans in April, down from 2.85 trillion yuan in March but higher than the 1.02 trillion yuan a year earlier, according to data released by the People’s Bank of China on Monday.

Analysts polled by Reuters had predicted new yuan loans would fall to 1.40 trillion yuan in April.

Household loans, mostly mortgages, fell to 666.9 billion yuan in April from 989.1 billion yuan in March, while corporate loans fell to 956.3 billion yuan from 2.05 trillion yuan.

The PBOC has rolled out a raft of easing steps since early February, including cuts in reserve requirements and lending rates and targeted lending support for virus-hit firms.

The first-quarter monetary policy implementation report from the People’s Bank of China (PBOC) published on Sunday dropped a vow to refrain from “flood-like” stimulus, suggesting authorities were keen to jump start an economy grappling with its biggest slump in decades.

The report said the central bank will keep growth of broad M2 money supply and social financing in line with and slightly higher than nominal GDP growth.

The M2 measure grew 11.1% in April from a year earlier, central bank data showed, above the 10.2% forecast in the Reuters poll. It rose 10.1% in March.

The net new lending figures are highly seasonal, so it makes sense to focus on the year-on-year change in the outstanding amounts to gauge the underlying trend, analysts said.

“After the persistent slowdown in credit growth in recent years, the latest pick-up is a reminder that the PBOC is still capable of engineering faster lending when it wants to,” Julian Evans-Pritchard at Capital Economics said in a note.

“The PBOC’s latest monetary policy report...suggests that further easing measures are in the pipeline and that credit growth will probably continue to accelerate in the coming months.”

Outstanding yuan loans grew 13.1% from a year earlier compared with 12.7% in March and analysts expectations for 12.9% growth.

Growth of outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, quickened to 12% in April from a year earlier and from 11.5% in March.

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 April, TSF fell to 3.09 trillion yuan from 5.15 trillion yuan in March. Analysts polled by Reuters had expected April TSF of 2.65 trillion yuan.

MORE POLICY EASING ON CARDS

China’s economy contracted 6.8% in the first quarter from a year earlier, shrinking for the first time since at least 1992, as the coronavirus outbreak paralysed production and spending, raising pressure on authorities to do more to stop mounting job losses.

The government has already provided tax relief for firms and increased fiscal spending as ballooning unemployment threatens social stability.

The central bank may cut interest rates further to support the government’s spending plans and pump out more cash to help banks and firms buy government debt, analysts said.

“There is still room for cutting interest rates and reserve requirements,” said Tang Jianwei, senior economist at Bank of Communications in Shanghai.

The central bank may continue to lower the benchmark lending rate, loan prime rate (LPR), this month, although it may not cut the interest rate on the medium-term lending facility, Tang said.

Analysts also say loans will rise further as key government-backed projects restart and pent-up consumer and real estate demand pick up following the easing in coronavirus-led lockdown measures.

Local governments issued nearly 1.9 trillion yuan in bonds in the first four months of this year, including 1.2 trillion yuan in special bonds, the finance ministry said on Monday.

Any acceleration in bond issuance could help boost TSF.

Reporting by Judy Hua and Kevin Yao; Editing by Simon Cameron-Moore, Kirsten Donovan

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