China’s new loans in June seen at five-month high on liquidity

BEIJING — New bank loans in China are expected to have picked up to a five-month high in June, a Reuters poll showed, as Beijing kept ample liquidity in the financial system to support the slowing economy and offset growing US trade pressure.

The central bank also stepped up cash injections last month to calm nerves after regulators seized a troubled regional bank, which sparked worries of financial contagion and briefly drove some short-term lending rates to record highs.

Chinese banks likely extended 1.7 trillion yuan ($246.92 billion) in net new yuan loans last month, up from 1.18 trillion in May but below 1.84 trillion in June 2018, according to a median estimate in a Reuters survey of 29 economists.

But some analysts are bracing for a weaker reading, after data from the China Banking and Insurance Regulatory Commission (CBIRC) last week suggested lenders doled out more than 990 billion in new loans last month.

“We expect a modest rise in new loans due to seasonal factors,” said Tang Jianwei, a senior economist at Bank of Communications in Shanghai.

“But CBIRC’s H1 data suggested new loans in June might be slightly lower than May. We think this is due to weak loan demand from the real economy, as investment and consumption remain sluggish and exports still faces downward pressure.”

Banks might also have been more cautious about lending risks in the wake of the takeover of Baoshang Bank in May, Tang added.

Capital Economics forecasts June loans at 1 trillion yuan, while noting that a slowdown may have been offset by faster growth in other forms of credit.

A steady stream of downbeat economic data in recent months has raised expectations that more policy easing is needed in China to put a floor under cooling growth. But top officials have repeatedly tried to downplay the likelihood of aggressive stimulus measures.

A central bank adviser said last week that China will not need “very big” stimulus to prop up growth, provided its trade dispute with the United States does not worsen. The two sides agreed to a trade ceasefire last month while they resume talks, but existing tariffs remain in place, threatening a continued “slow burn” for the Chinese economy, according to ING.

The poll also showed that outstanding yuan loan growth on a year-on-year basis likely held steady at 13.4% from May, while broad M2 money supply was seen rising fractionally to 8.6% on-year, from 8.5%.

Total social financing (TSF), a broad measure of credit and liquidity in the economy, was estimated to have risen to 1.95 trillion yuan in June from 1.4 trillion in May.

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.

Corporate bond issuance appears to have picked up last month in response to falling market interest rates, Capital Economics said in a note.

China’s benchmark overnight repo rate fell to a four-year low of nearly 1% in late June as the central bank poured funds into money markets ahead of a seasonal surge in cash demand at the end of June.

Seasonal worries over tight liquidity intensified after the government’s takeover of debt-laden Inner Mongolia-based Baoshang Bank, which also added to concerns over the risk of mounting bad loans.

While regulators said Baoshang was an isolated case, some smaller banks and brokers have since struggled to get short-term funding and their financing costs have spiked, prompting regulators to warn larger lenders not to cut off firms from market funding. — Reuters