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China New Loans Weaker-Than-Expected, Stimulus Forecast

New bank lending rose to $190 billion in May – more than $30bn short of forecasts – prompting analysts to predict the PBOC will need to step in

Analysts said a sharp slowdown in credit growth is especially worrying.


China’s new bank loans picked up last month but signs of slowing momentum in the world’s No2 economy have raised expectations that more stimulus may be needed to sustain the recovery.

The weaker-than-expected credit data could strengthen the case for policymakers to roll out more support, including a cut in the benchmark lending rate this month, analysts said, amid deflationary risks and mounting local government debt.

New bank lending rose to 1.36 trillion yuan ($190.18 billion) in May, data from the People’s Bank of China (PBOC) showed on Tuesday, up from April but missed analysts’ estimates.


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Economists polled by Reuters had expected new yuan loans would jump to 1.6 trillion yuan last month, versus 718.8 billion yuan in April and against 1.89 trillion yuan a year earlier.

“The credit growth is weak, which is not surprising as other economic indicators such as PMI and exports also sent consistent signals,” Zhiwei Zhang, chief economist at Pinpoint Asset Management, said in a note.

“This explains why the PBOC cut the reverse repo rate. It is a small step in the right direction. I expect more policy actions to follow in coming weeks.”

China’s central bank cut short-term borrowing costs on Tuesday to help restore confidence, signalling possible easing for longer-term rates.

Capital Economics analysts said a sharp slowdown in credit growth is particularly worrying. Outstanding yuan loans in May grew 11.4% on year compared with 11.8% growth the previous month. Analysts had forecast 11.6% growth.

“This is concerning given that credit growth is one of the most reliable leading indicators of China’s economic cycle. Unless the slowdown in lending is arrested soon, it risks derailing the reopening recovery,” they said in a note.

The world’s second-largest economy grew at a faster-than-expected clip in the first quarter, rebounding from three years of pandemic restrictions, but the recovery has been patchy with the services sector outperforming manufacturing and exports.


Corporate Loans Surge

Household loans including mortgages were up 367.2 billion yuan in May, versus a contraction of 241.1 billion yuan in April. Corporate loans rose to 855.8 billion yuan in May from 683.9 billion yuan in April, central bank data showed.

Recent data has shown China’s recovery is stalling as global demand falters, raising expectations that the authorities need to spur growth and keep a lid on unemployment.

The PBOC will enhance “counter-cyclical” policy adjustments to fully support the real economy and policy tools will be used to lower funding costs, central bank governor Yi Gang said in a meeting in Shanghai last week, according to a statement.

“We believe these comments suggest that Beijing has now become seriously concerned over the potential for a double dip, and the PBOC may respond by stepping up stimulus measures in the near term,” analysts at Nomura said in a note.

Some analysts expect the PBOC to cut the benchmark lending rate, or loan prime rate (LPR), this month, citing recent deposit rate cuts by Chinese banks and an expected pause in the US Federal Reserve’s rate hikes.

The central bank, which cut banks’ reserve requirement ratio – the amount of cash that banks must hold as reserves – in March, has kept the LPR unchanged since September.

China’s top economic planner released on Tuesday a raft of steps to lower business costs, including exempting and reducing value-added tax for small firms and lowering lending rates.


  • Reuters with additional editing by Sean O’Meara


Read more:

China Bank Loans Plunge Far More Than Expected in April

China’s Green Loans Exceed $3.2 Trillion: Central Bank Chief

China New Bank Loans Hit Record $720 Billion in January



Sean O'Meara

Sean O'Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.


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