Wed, Feb 17, 2016 page14

• Chinese loans rise to record high

  • Reuters, BEIJING
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  Chinese banks armed with fresh lending quotas extended a record 2.51 trillion yuan (US$385.4 billion) of new loans last month, far more than markets had expected, suggesting Beijing is keeping monetary policy loose to counter a protracted economic slowdown.

  Economists polled by Reuters had expected new yuan loans to surge to a near seven-year high of 1.8 trillion yuan last month, tripling from 597.8 billion yuan in December last year.

  Analysts attributed the lending spike to increased injections by the central bank ahead of the Lunar New Year holiday, a traditional tendency among Chinese banks to “front load” loans at the start of a year and companies reducing their exposure to foreign-currency loans.

  “Chinese banks expanded their balance sheet aggressively in the first month of this year, which implies implicit support from the government to counter the economic slowdown,” Commerzbank Asia senior emerging markets economist Zhou Hao (周浩) said in Singapore.

  Analysts also attributed the surge in new loans to soaring demand for mortgages as property prices recover and government steps to fast-track infrastructure projects to spur activity.

  While economists have sometimes speculated that big swings in China’s credit data were linked more to speculative activity, the latest data appeared to suggest solid demand in the real economy. Medium and long-term loans to households were up 45 percent last month from the same period a year ago while such loans to companies jumped 73 percent.

  Total social financing, another important indicator of China’s credit expansion, rose to 3.42 trillion yuan last month from 1.82 trillion yuan in December last year.

  Part of that might reflect massive infusions of cash into the banking system by the People’s Bank of China (PBOC) ahead of the holiday to avert any risks of a cash crunch. The PBOC injected 1.53 trillion yuan via its standing lending facility, medium-term lending facility and pledged supplementary lending.

  Some economists believe the PBOC is currently favoring liquidity injections as a policy tool rather than long-expected cuts to its policy interest rate and bank reserve ratio requirements (RRR), which authorities worry could put further depreciation pressure on the yuan.

  According to sources, PBOC Assistant Governor Zhang Xiaohui (張曉慧) has said the central bank would not rush to cut the amount of cash banks must hold in reserves, as doing so could send a strong signal on policy easing.

  However, while the central bank might shun further cuts in its main interest rate and RRR in the near term, it might still have to ease policy again, analysts say.

  The PBOC has cut its policy rate six times since November 2014 and reserve requirements several times, but both remain relatively high, giving it plenty of room.

  “As capital outflows continued, we believe that the PBOC will still need to lower the reserve requirement ratio to permanently inject liquidity into the economy,” ANZ economists wrote in a research note, adding that a further cut in RRR was possible in the first quarter.

  Bank lending usually spikes in China in January as banks, which face limits on how much they can lend each year, squeeze as much lending as possible into the first month to protect market share.

  The spike in new loans last month also could be due to Chinese companies making early repayments of their foreign-denominated loans and bonds to reduce their currency exposure, analysts say.

  Broad M2 money supply also rose to a 19-month high of 14 percent last month from a year ago, beating expectations of 13.4 percent and December’s 13.3 percent.
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