BEIJING, June 12 (Reuters) – China’s new bank lending rose less than expected in May after contracting the previous month, as a prolonged property downturn continued to weigh on household borrowing.
China’s new yuan loans rose to 520 billion yuan ($77 billion) in May, recovering from a 10 billion yuan contraction in April but missing analysts’ forecasts, according to Reuters calculations based on data from the People’s Bank of China.
Analysts polled by Reuters had expected new yuan loans would total 550 billion yuan in May, compared with 620 billion yuan a year earlier.
The PBOC does not provide monthly breakdowns. Reuters calculated the May figure based on the bank’s January-May data released on Friday, compared with the January-April figure.
Banks extended 9.11 trillion yuan in new loans in the January to May period, down from 10.68 trillion yuan in the same period last year, highlighting weak demand for borrowing due to a soft business environment, tepid consumer demand and a property downturn.
Household loans, including mortgages, contracted by 141.2 billion yuan in May after a 786.9 billion yuan contraction in April, while corporate loans rose to 640 billion yuan from 390 billion yuan, according to Reuters’ calculations.
New home sales in May in China continued to show widening divergence across cities and “the continued deleveraging cycle in the household sector is likely to increase reliance on fiscal policy as the main tool for stabilisation”, ANZ Research said in a note last week.
Outstanding yuan loans grew 5.5% in May from a year earlier, to 281.02 trillion yuan, slower than 5.6% in April but in line with analysts’ forecasts.
The PBOC had issued informal guidance to some major state-owned banks to boost lending in May following a similar instruction in April, Reuters reported. China logged this year’s first monthly shrinkage of new loans in April, with analysts saying weak household loan demand was the main culprit.
Despite the effect of the Labour Day holiday last month, “underlying consumption momentum remains weak, as evidenced by the sharp 20% contraction in automobile sales in May,” the ANZ Research note added.
“This comes despite the PBOC reportedly urging banks to increase lending last month, highlighting that a persistent lack of demand, rather than supply, is the key constraint on bank loan growth,” Capital Economics said in a note.
Weak credit growth reflects a slump in mortgage demand amid the property crisis, and a drop in short-term household loans, partly due to reduced funding for the government’s consumer goods trade-in scheme, it added.
In a commentary on Friday, the PBOC-run publication Financial News said slower loan growth does not mean weaker financial support to the economy, citing China’s “already very large loan base” and diversified financing channels.
“New loan volume doesn’t necessarily correspond to the strength of support for the real economy,” the commentary said, adding that focus should be on improving efficiency as the economy shifts from credit-heavy sectors like real estate to tech and services, which rely less on borrowing.
China’s growth lost momentum in April, with industrial output cooling and retail sales sinking to over three-year lows as the $20 trillion economy wrestled with higher energy costs from the Iran war and persistently weak domestic demand.
Broad M2 money supply grew 8.6% from a year earlier in May, PBOC data showed, above analysts’ median 8.5% forecast in the Reuters poll. In April, M2 grew 8.6%.
The narrower M1 money supply grew 5.5% in May from a year earlier, compared to 5% in April.
Outstanding total social financing (TSF) – a broad measure of credit and liquidity – rose 7.7% in May from a year earlier, slower than 7.8% in April. Any acceleration in government bond issuance could boost such financing.
($1 = 6.7609 Chinese yuan renminbi)
(Reporting by Shi Bu and Kevin Yao; Editing by Tomasz Janowski, Emelia Sithole-Matarise and Chizu Nomiyama )
