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China’s bank credit halved in October as central bank grows hawkish

Chinese banks cut their lending in October to about half the level in September as the People’s Bank of China grew less generous about providing cheap funds to lenders.

New yuan bank loans in October fell to 651.3 billion yuan (HK$742 billion) from 1.22 trillion yuan in September, the central bank said on Friday.

Long-term household loans – usually referring to housing mortgages – fell to 489.1 billion yuan from a record high of 574.1 billion yuan in September after at least 20 Chinese major cities launched rules to curb home purchases and property speculation.

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Broad M2 money supply grew 11.6 per cent year-on-year in October, up slightly from the 11.5 per cent reported in September.

However, the expansion is still much slower than the government’s whole-year target of 13 per cent set in early 2016, reflecting the central bank’s reluctance about excessive easing when economic slowdown is temporarily halted.

“The drop in new lending last month was seasonal and does not reflect a shift in broad credit growth, which was stable in October,” Julian Evans-Pritchard, China economist at Capital Economics, wrote in a note. “This stability may not last, however, and we expect credit growth to decelerate further in coming quarters.”

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The central bank has been refraining from major policy tweaks, but it has sent clear messages through its interbank market operations that the days of unlimited central bank cheap-funding support are numbered.

Total social financing, an indicator covering bank loans, bonds and some shadow-banking activities, shrank to 896.3 billion yuan in October from 1.72 trillion yuan a month earlier after China’s financial authority started to make risk control a top priority.

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Zhang Jun, chief economist at China Fortune Securities, said mortgage loans would continue to fall in November and December as tightening policies gradually kicked in.

“The fall of housing mortgages is pretty small in October as banks have not responded quickly to the central bank’s instructions,” Zhang said.

The central bank said it would stick to “neutral and appropriate” monetary policy, according to the third-quarter monetary policy implementation report released on Tuesday.