China's Jan yuan loans set to jump to 3 trln yuan, virus darkens growth outlook

• Chinese banks tend to front-load loans at the beginning of the year to get higher-quality customers and win market share.
• The lending tally would be the second highest ever reported, behind a record 3.23 trillion yuan in January 2019.
• Broad M2 money supply growth in January was seen at 8.6pc, marginally down from 8.7pc in December.

BEIJING: China's new bank loans are expected to rise sharply in January from the previous month, a Reuters poll showed, as authorities step up support for an economy already under severe strain and facing a new threat from a fast-spreading coronavirus outbreak.

Chinese banks tend to front-load loans at the beginning of the year to get higher-quality customers and win market share.

Growth in the world's second-biggest economy slowed to 6.1pc in 2019, the weakest pace since 1990, as demand at home and abroad slowed in part due to the Sino-US trade war.

Policy sources have told Reuters the government plans to roll out more support measures as the virus outbreak, which has killed more than 600 people and infected over 30,000, is expected to have a devastating impact on first-quarter growth.

Chinese banks are estimated to have issued 3.00 trillion yuan ($430.08 billion) in net new yuan loans last month, up from 1.14 trillion yuan in December, according to the median estimate in a Reuters survey of 17 economists.

The lending tally would be the second highest ever reported, behind a record 3.23 trillion yuan in January 2019.

While the virus outbreak has brought about fresh risks to growth, investors are hoping for some relief on the trade front after Beijing and Washington signed an initial deal last month to defuse a protracted tariff war.

Under the agreement, China will boost purchases of US goods and services by $200 billion over two years in exchange for the rolling back of some tariffs.

According to sources, the People's Bank of China is likely to lower its key lending rate - the loan prime rate (LPR) - on Feb. 20, and cut the amount of cash banks must hold in reserves in the coming weeks.

The PBOC also has told banks to cap rates on loans for selected firms at 3.15pc, 1 percentage point lower than the latest LPR.

Earlier on Friday, central bank's vice governor Pan Gongsheng said the government will step up support for the economy to cushion the blow from a coronavirus outbreak.

Over the past two years, Beijing has been relying on a mix of monetary and fiscal measures to weather the downturn, cutting taxes and issuing local government bonds to fund infrastructure projects while trying to spur lending, especially for small firms.

The PBOC has cut reserve requirement ratios (RRR), or the amount of cash that banks must hold as reserves, eight times since early 2018, with the latest reduction taking effect on Jan. 6. It has also lowered its key lending rates modestly since August.

In January, total social financing (TSF) is expected to rise to 4.3 trillion yuan from 2.103 trillion yuan in December.

Broad M2 money supply growth in January was seen at 8.6pc, marginally down from 8.7pc in December.

Annual outstanding yuan loan was expected to grow 12.1pc for January, down from 12.3pc in December.