DgcityChinese banks are expected to have extended far fewer new loans in October than they did a year earlier, analysts said, as weak demand from companies and households kept credit growth subdued despite the rollout of a major new government financing tool.
A survey of 11 institutions put expected new yuan lending at an average of about 90 billion yuan, down sharply from the 220 billion yuan recorded in October last year and the more than one trillion yuan added in September. October is typically a quiet month for lending after banks rush to meet quarterly targets in September, but this year’s slowdown has been deeper than usual.
Some forecasters expected loans to actually shrink, with businesses repaying more debt than they took on. Three-month rates on interbank lending between major banks hovered near unusually low levels all month, a sign that lenders had ample funds but few creditworthy borrowers seeking them. The stock of bank lending is already growing at its slowest pace since records began.
The weakness runs through both halves of the economy. Household borrowing has been held back by the property downturn, with the stock of mortgage loans shrinking for years as families pay down old debt faster than they take on new loans. Companies, facing a brutal price war and uncertain export conditions, have also been cautious, apart from those channeling cheap policy loans into technology and green projects.
Beijing has been trying to fill the gap. An 800 billion yuan policy-backed financing instrument, designed to support investment, was fully deployed by October after being announced earlier in the year, and economists expect it to eventually lift corporate lending. But the projects it funds take time to draw in matching bank finance, meaning its impact on October’s numbers was likely limited.
The broader measure of total social financing, which includes bonds and other credit as well as bank loans, looked healthier, thanks to heavy government bond issuance. Net government bond financing ran at around 1.1 trillion yuan, far above last year’s level, as Beijing pushed local authorities to use up debt quotas and speed spending. Several forecasters expected overall financing growth to tick up as a result.
The data, due from the People’s Bank of China in the coming days, will test how much of the economy’s credit needs are now being met by government borrowing rather than private demand. Policymakers have been steering cheap finance toward technology, green development and other favoured sectors, but with consumer spending and property still weak, many analysts believe more easing, including possible interest rate cuts, will be needed to turn credit demand around.
