China new bank lending stumbles as COVID flare-ups hit demand

A Chinese national flag is pictured, following the coronavirus disease (COVID-19) outbreak, in Shanghai, China, October 14, 2022. REUTERS/Aly Song/Files
  • Oct new loans 615.2 bln yuan vs f'cast 800 bln yuan
  • Oct M2 money supply +11.8% y/y, vs f'cast of +12.0%
  • Oct TSF 907.9 bln yuan, vs f'cast 1.6 trln yuan
  • C.bank pledges to support the real economy

BEIJING, Nov 10 (Reuters) - New bank lending in China tumbled more than expected in October from the previous month while broad credit growth slowed, as COVID-19 outbreaks and a property sector downturn weighed on credit demand.

The People's Bank of China has pledged to keep policy accommodative to support growth, but it faces limited room due to concerns over capital flight and a weakening yuan.

Chinese banks extended 615.2 billion yuan ($84.86 billion) in new yuan loans in October, about a quarter of the 2.47 trillion yuan in September, data released by the People's Bank of China showed on Thursday.

Analysts polled by Reuters had predicted new yuan loans would fall to 800 billion yuan in October. The new loans were lower than 826.2 billion yuan a year earlier.

"Much weaker than expected credit growth and an extremely unusual outright fall in lending to households again underlines the difficulties policymakers are facing stimulating growth while activity is suppressed by zero-COVID," Mark Williams at Capital Economics said in a note.

China's top leadership body, the Politburo Standing Committee, called for the unwavering support of the country's "dynamic-zero" COVID policy on Thursday, during its first meeting since being unveiled at last month's Communist party congress, state media reported.

The world's second-largest economy saw a faster-than-expected rebound in the third quarter but its growth prospects have dimmed due to a recurrence of COVID outbreaks, with lockdowns hurting factory and consumer activity. Falling home sales have also deepened the problems of indebted property developers.

"While domestic demand is still weak and a decline in external demand is accelerating, counter-cyclical policies need to be further strengthened and effective to provide more powerful support for the real economy," said Wen Bin, chief economist at China Minsheng Bank.

Luo Yunfeng, an analyst at Merchants Securities, said a drop in October bank lending was expected as the central bank may have guided banks to lend more in September, ahead of a twice-a-decade congress of the ruling Communist Party.

Household loans, including mortgages, contracted by 18 billion yuan in October, versus 650.3 billion yuan in September, while corporate loans dropped to 462.2 billion yuan from 1.92 trillion yuan, central bank data showed.

China's local governments issued a net 24.1 billion yuan in special bonds in September, the finance ministry has said, down from 51.6 billion yuan in August.

BROAD CREDIT GROWTH SLOWS

The central bank governor has pledged to maintain normal monetary policy and positive interest rates for as long as possible, projecting that China's potential economic growth is likely to stay within a reasonable range.

Chinese regulators have been expanding financing channels for ailing property developers in a bid to stabilise the sector.

China is on track to miss its annual growth target of around 5.5% - the latest Reuters poll forecast 2022 growth at 3.2%.

Broad M2 money supply grew 11.8% from a year earlier, central bank data showed, below analysts' forecast of 12.0% in the Reuters poll. M2 grew 12.1% in September from a year earlier.

Outstanding yuan loans in October grew 11.1% from a year earlier, compared with 11.2% growth in September. Analysts had expected 11.2% growth.

Growth of outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, slowed to 10.3% in October from 10.6% in September.

Any slowdown in government bond issuance could weigh on TSF, which 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 October, TSF fell sharply to 907.9 billion yuan from 3.53 trillion yuan in September. Analysts polled by Reuters had expected October TSF of 1.6 trillion yuan.

Reporting by Kevin Yao and Ella Cao; Editing by Alison Williams, Alex Richardson, Kirsten Donovan

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