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Chinese bank lending soars to over 1 trillion yuan in September amid surge in demand for mortgages

Chinese banks extended 1.22 trillion yuan (HK$1.4 trillion) in new loans in September, a three-month high and well above expectations, while money supply growth edged up, indicating the central bank is keeping policy accommodative to support economic growth.

The central bank has pledged to keep policy slightly loose, but recent data has suggested many Chinese companies are hoarding cash rather than investing it, adding to views that further central bank easing would not be as effective in spurring the economy as in the past.

Analysts polled by Reuters had expected new lending to increase modestly to 1 trillion yuan, after more than doubling in August to 948.7 billion yuan.

Broad M2 money supply grew 11.5 per cent in September from a year earlier, the People’s Bank of China said on Tuesday, slightly below forecasts but up from August’s 11.4 per cent rise.

China’s new loans beat expectations in August but home mortgages still main driver

Outstanding yuan loans grew 13 per cent by month-end on an annual basis.

Outstanding loans had been forecast to rise 12.9 per cent, while money supply was seen up 11.6 per cent.

New bank loans totalled 10.96 trillion yuan in the first nine months.

Strong lending has been driven by a sharp jump in local government debt swaps, aimed at reducing their interest payments, and by strong mortgage demand, highlighting the risks to the banking system if a property boom pops.

In the first nine months household loans, which are mostly home mortgage loans, accounted for 46 per cent of total loans, up from 39 per cent in the first half of the year.

In recent weeks, a growing number of Chinese cities have announced new restrictions on property purchases as the government tries to cool soaring home prices.

“Although we expect economic growth to slow again in the fourth quarter, the tightening measures taken by local governments suggest that short-term policy is now focused on reining in the surge in home prices rather than boosting growth,” analysts at Nomura said in a note.

“Against this backdrop, room for the PBOC {cental bank} to further cut interest rates or the RRR this year is limited. As such, we remove our call for one more interest rate cut and one more RRR cut through the rest of this year.”

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China’s debt has soared to 250 per cent of GDP and the Bank for International Settlements warned in a report published in September that a banking crisis was looming in the next three years.

“Credit booms, even stealth mini ones, have a stair-step effect on the credit-to-GDP ratio, which at 250 per cent China can ill afford,” Tim Condon, ING’s chief Asia economist, wrote in a recent note.

But Condon believed the recent credit boom driven by lending for government debt swaps had already peaked.

Total social financing, a broad measure of credit and liquidity in the economy, rose to 1.72 trillion yuan in September from 1.47 trillion yuan in August.

It includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offers, loans from trust companies and bond sales.

M1 money supply, which includes cash and short-term deposits, rose 24.7 per cent in September from a year earlier, versus August’s 25.3 per cent rise.

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A widening gap between M1 and M2 growth has fuelled concerns about a “liquidity trap” in the economy where companies remain wary of investing regardless of how much stimulus policymakers pump into the system.

The gap narrowed to 13.2 percentage points in September from 13.9 percentage points in August.