China's new yuan loans expected to fall in May, policy support intact

BEIJING: China's new bank loans are expected to decline in May from the previous month, but are still expected to be higher than a year earlier amid continued policy support to bolster the economy against the impact of the coronavirus pandemic.

Chinese banks are estimated to have issued 1.50 trillion yuan ($211.84 billion) in net new yuan loans in May, compared with 1.70 trillion yuan in April, according to the median estimate in a Reuters survey of 33 economists.

That would be higher than 1.18 trillion yuan in new loans a year earlier.

Pan Gongsheng, Deputy Governor of the People's Bank of China, said last week that the economic hit from the coronavirus pandemic was bigger than first expected and that more monetary and credit policy support was needed.

China made no annual growth target this year for the first time since 2002, and pledged more government spending as the COVID-19 pandemic hammers the world's second-biggest economy.

Premier Li Keqiang told parliament last month that d monetary policy would be more flexible, and growth of M2 - a broad gauge of money supply - and total social financing would be significantly higher this year.

Broad M2 money supply growth in May was seen at 11.3pc, versus 11.1pc growth in the previous month.

From June 1, the central bank started buying 400 billion yuan of loans made by local lenders to small firms to encourage banks to lend as much as 1 trillion yuan.

It will also provide 40 billion yuan in funds to help banks extend loans with a principal value of about 3.7 trillion yuan.

Li said last month the government would extend loan payments for small and micro-sized business until the end of March next year.

The central bank has rolled out easing steps since early February including cuts in reserve requirements and lending rates and targeted lending support for firms hit hard by the impact of the pandemic.

Beijing has been leaning more heavily on fiscal stimulus to weather the downturn, cutting taxes and issuing local government bonds to fund infrastructure projects.

The government has set a 2020 budget deficit of at least 3.6pc of GDP, up from last year's 2.8pc, and fixed the quota on local government special bond issuance at 3.75 trillion yuan, up from 2.15 trillion yuan.

The government will also issue 1 trillion yuan in special treasury bonds this year.

Local governments issued 2.15 trillion yuan in special bonds in the first five months of this year, the finance ministry has said.

Any acceleration in bond issuance could help boost total social financing (TSF), a broad measure of credit and liquidity.

TSF is expected to fall slightly to 3.00 trillion yuan in May from 3.09 trillion yuan in April.

Annual outstanding yuan loans are expected to grow 13.2pc for May, faster than 13.1pc growth for April.