China bank lending hits record $1.72trn in first half after solid June

BEIJING: New bank lending in China rose 22.3% in June as authorities continued to boost credit and ease policy to get the world's second-largest economy humming again after a sharp coronavirus-induced contraction.

Chinese banks extended 1.81 trillion yuan ($258.29 billion)in new yuan loans in June, up from 1.48 trillion yuan in May and slightly exceeding analysts' expectations, according to data released by the People's Bank of China (PBOC) on Friday.

That pushed bank lending in the first half of this year to a record 12.09 trillion yuan ($1.72 trillion), beating a previous peak of 9.67 trillion yuan in the first half of 2019 and roughly equivalent to the gross domestic product (GDP) of Canada.

PBOC Governor Yi Gang said last month new loans could reach nearly 20 trillion yuan for the full year.

Analysts polled by Reuters had predicted 1.80 trillion yuan of new yuan loans in June.

The monthly tally was 9% higher than a year earlier. While lending in China typically picks up in June, analysts say policymakers want to maintain strong credit growth until the economy gets back on solid footing following a record 6.8% contraction in the first quarter.

Low interest rates, increased lending and a ramp-up in government bond issuance "should help keep the economic recovery on track and allow output to return to its pre-virus trend by the end of the year," Julian Evans-Pritchard, senior China economist at Capital Economics, said in a note after the data.

"We anticipate a further acceleration (in credit growth) in the coming months."

An increase in government bond issuance could help boost total social financing (TSF), a broader measure of credit and liquidity.

By the end of June, growth of outstanding TSF quickened to 12.8% year-on-year from May's 12.5%. TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offerings, loans from trust companies and bond sales.

In June, TSF rose to 3.43 trillion yuan from 3.19 trillion yuan in May. Analysts had expected 3.00 trillion yuan.

Yi also said China would keep financial system liquidity ample in the second half but would need to consider withdrawing support at some point, raising questions among investors over when it may start dialing down stimulus.

The PBOC has rolled out a raft of easing steps since early February, including cuts in lending rates and banks' reserve requirements and extending targeted lending support for virus-hit firms. But it has not slashed interest rates to near zero or embarked on huge bond buying sprees as many other central banks have.

CREDIT-BACKED RECOVERY

China's policy steps to support the economy have yielded results and it will step up financial support for firms and employment in the second half, Ruan Jianhong, head of the central bank's statistics department, told a briefing.

China should allow phased rises in its macro leverage ratio to expand credit support for the economy, Ruan said, adding the debt level rose 14.5 percentage points in the first quarter and climbed further in the second quarter.

Guo Kai, vice head of the PBOC's monetary policy department, told the same briefing that credit growth should not outpace economic recovery and arbitrage and resource mismatch may occur if interest rates are too low.

On Friday, Morgan Stanley became the latest investment bank to upgrade its growth forecast for China, saying it now expected the economy to expand 2.2% in the second quarter from a year earlier, up from earlier expectations of 1.5%.

Household loans, mostly mortgages, rose to 978.8 billion yuan in June from 704.3 billion in May, while corporate loans rose to 927.8 billion yuan from 845.9 billion, according to Reuters calculations based on the central bank data.

Broad M2 money supply in June grew 11.1% from a year earlier, the data showed, in line with analysts' forecasts in a Reuters poll and the same pace as in May.

Outstanding yuan loans grew 13.2% from a year earlier, also steady from May, as expected.