UPDATE 2-China Aug new loans fall as cooling economy makes both banks, borrowers wary

* China trying to coax banks to lend as economy cools

* Aug loans 1.28 trln yuan, less than f’cast but up sharply y/y

* Corporate loan demand weaker, consumer lending rises

* Aug M2 money supply up 8.2 pct y/y, vs f’cast of 8.5 pct

* Aug TSF 1.52 trln yuan, vs 1.04 trillion yuan in July (Adds analyst comment, details)

BEIJING, Sept 12 (Reuters) - Chinese banks made fewer new loans in August than expected, highlighting problems facing the central bank as it tries to boost credit to smaller companies facing weaker demand at home and shrinking export orders.

With U.S. trade duties threatening to ratchet up pressure on China’s already slowing economy, its policymakers have shifted focus in recent months to growth-boosting measures, pushing banks to lend more and bringing down financing costs.

Chinese banks extended 1.28 trillion yuan ($186.40 billion) in net new yuan loans in August, according to data released by the People’s Bank of China (PBOC) on Wednesday.

Analysts polled by Reuters had predicted an August tally of 1.3 trillion yuan, down from July’s 1.45 trillion yuan but nearly 20 percent more than the same month last year.

“Financing demand is relatively weak as firms are unwilling to borrow,” said Luo Yunfeng, chief analyst at Merchants Securities in Beijing.

Corporate lending fell from July, while household loans picked up sharply, suggesting banks are taking on more exposure to relatively safer consumer loans as corporate credit quality deteriorates along with the slowing economy.

Corporate loans fell to 612.7 billion yuan in August from 650.1 billion yuan a month earlier.

Household loans, mostly mortgages, rose to 701.2 billion yuan in August from 634.4 billion yuan in July. Household loans also accounted for 54.8 percent of total new loans in August, versus 43.8 percent in the preceding month.

Adding to signs of fading credit confidence, analysts pointed to a sharp rise in banks’ bill financing amid suspicion that they are seeking to expand their loan books with such short-term loans to limit default risks.

Bill financing jumped to 409.9 billion yuan in August, accounting for nearly a third of new loans and up from 238.8 billion yuan in July.

Broad M2 money supply grew 8.2 percent in August from a year earlier. Analysts had expected it to rise 8.5 percent, matching July’s pace.

Outstanding yuan loans grew 13.2 percent from a year earlier, matching expectations and in line with July.


To head off a sharper slowdown in the economy and weather the U.S. trade row, China is ramping up infrastructure spending and pumping ample liquidity into the financial system to guide borrowing rates lower.

The central bank also is trying to encourage banks to keep lending to struggling small and mid-sized private firms, which traditionally have a tougher time accessing affordable funding than their larger, state-owned peers.

Regulators reportedly said in August they would encourage banks to roll over loans to smaller firms without requiring repayment of principal.

But China’s commercial banks are increasingly cautious. Non-performing loans jumped sharply for smaller banks in the second quarter and corporate bond defaults are on the rise, even as Beijing tries to maintain a broader clampdown on riskier lending and prevent another explosive jump in debt.

At least 13 lenders, including 10 rural commercial banks, have had their credit ratings cut or outlooks downgraded to negative since the start of 2017, according to a Reuters analysis in July.


With the Trump administration expected to trigger more tariffs against Beijing at any time, and possibly extend them to cover virtually all of China’s exports to the United States, analysts are pencilling in more fiscal and monetary policy support measures in coming months.

The PBOC has already cut banks’ reserve requirement ratios (RRR) three times so far this year, with at least one more RRR cut expected in 2018.

TO be sure, total new bank loans in the first eight months of the year jumped nearly 19 percent from a year earlier to 11.76 trillion yuan. That is well on track to set a new full-year record, eclipsing last year’s 13.53 trillion yuan.

But increased bank lending has barely compensated for shrinking off-balance sheet shadow loans, which have been one of the major targets of regulators as they seek to reduce systemic financial risks.

Shadow lending has been an important source of funds for cash-starved private firms.

Combined trust loans, entrusted loans and undiscounted bankers’ acceptances, which are common forms of shadow banking finance, fell by 267.4 billion yuan in August, following a slide of 1.75 trillion yuan in the first seven months.

Annual growth in outstanding total social financing (TSF), a broad measure of credit which includes off-balance sheet forms of financing, slowed to 10.1 percent in August, the lowest on record, from July’s 10.3 percent.

TSF did rise to 1.52 trillion yuan in August from 1.04 trillion yuan in July. Capital Economics believes that a sharp jump in local government bond issuance supported the monthly reading, but said the pace is not sustainable given they are close to hitting their annual quotas.

“Policymakers will soon need to turn to other measures, such as further monetary easing or a relaxation of constraints on off-budget local government borrowing, in order to put a floor beneath credit growth and help prop up economic activity,” senior China economist Julian Evans-Pritchard said in a note.