Chinese bank loans grew at the slowest pace on record in February
Chinese bank loans grew at the slowest pace on record in February, underscoring weak loan demand despite steps by the central bank to ease policy and help the economy.
The stock of yuan loans grew 9.7% in February from a year ago, the lowest since 2003, according to figures released Friday by the People’s Bank of China. It was also the first time that the rate fell below 10%.
Total financing stock – a broad measure of lending – grew just 9%, also near a record low. The M1 money supply measure, which includes both cash in circulation and corporate demand deposits, weakened to 1.2%, the lowest level since January 2022. This indicator is being closely watched given signs of the slowdown that firms are not enjoying plans to use its money in the short term to invest or expand production.
“The main problem is demand in the real economy, and that cannot be solved by monetary policy alone,” said Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Plc. “Markets may have to further lower expectations for credit growth.”
Demand for loans in the world’s second-largest economy has been sluggish, and weakness at the start of 2024 threatens to make achieving Beijing’s economic growth target of around 5% all the more difficult. China has also experienced weak or negative price growth in its economy in recent months, which should weigh on credit growth.
China’s budget published this month shows the country is targeting nominal growth above 7% this year, analysts said. Key economic policymakers have pledged to keep money supply and credit growth in line with the growth target and with an inflation target of 3% this year, with the PBOC previously saying it would ensure credit expansion would be rapid and at a sustainable pace by 2024 to grow.
What Bloomberg Economics says…
“Combined data from January and February – which removes Lunar New Year disruptions – showed the total number of new loans fell by 342 billion yuan from a year earlier. The People’s Bank of China kept interest rates unchanged earlier Friday. The credit data shows that this was not optimal. What is needed is a strong dose of stimulus to increase confidence and stimulate growth.”
– Eric Zhu, economist
China’s central bank has recently taken some steps to stimulate demand, including last month cutting a key benchmark interest rate on long-term loans, including mortgages, by a record amount and reducing the amount of cash banks must hold. But so far that has done little to revive the activity.
Wary of flooding the market with too much liquidity that is not routed in ways that support growth, the PBOC earlier on Friday pulled money from the banking system for the first time since November 2022 through its one-year policy loans. The move was seen as a way to deter financial speculation in an environment where monetary stimulus appears to be fueling a bond market recovery rather than helping the economy.
According to Ding, more fiscal stimulus and a bottoming out of the real estate market will be needed to help restore credit demand. In the meantime, slower money and credit growth of 8% to 9% may be “desirable” for the central bank as it has paid more attention to using loans more efficiently, he said.
There may still be room for the PBOC to cut rates this year, even though economists are divided on the timing of a possible move.
“Weak credit growth at the start of the year suggests more room for policy support,” said Lynn Song, chief China economist at ING Groep NV.
The PBOC emphasized in its latest monetary policy report that markets should look not just at the rate of credit growth, but rather at how financing meets the needs of key sectors of the economy, such as the green and technology sectors.
In a sign that does not bode well for the troubled real estate market, medium- and long-term household borrowing – a benchmark for mortgages – contracted in February. This suggests that households have repaid more home loans than they have taken out new loans.
February is generally a slow month for credit expansion. Banks are generally in no rush to meet their quarterly lending targets during this period. The Lunar New Year holiday, which lasted a day longer than usual this year, reduced the number of working days.
The release also raised eyebrows due to its later-than-usual timing. It was the first time since February 2020 that the data was published on or later than the 15th, which is usually the end of a five-day period before its publication.
First print: March 16, 2024 | 12:30 pm IST