Chinese banks hand out record loans in bid to bolster mainland’s slowing economy

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Chinese banks hand out record HK$3 trillion of loans in bid to bolster mainland’s slowing economy

Lending spree likely to help economy, but may impede China’s efforts to reduce debt levels, economists say

PUBLISHED : Tuesday, 16 February, 2016, 11:12am
UPDATED : Tuesday, 16 February, 2016, 3:54pm

Zhou Xin
[email protected]



The level of bank lending was the highest last month since March 2009. Photo: Reuters

Chinese banks handed out a record amount of new loans last month to help China’s slowing economy, central bank data showed on Tuesday.

The 2.51 trillion yuan (HK$3 trillion) in loans in January was almost triple the level of the previous month.

It also marked a hefty rise from the previous record of 1.89 trillion yuan in March 2009 when China was in the midst of a financial crisis and rolling out a massive stimulus package.

The unprecedented amount of new credit from banks in a single month comes as growth in the world’s second largest economy is rapidly slowing. China’s economy grew at its slowest rate in a quarter of a century last year.

Liu Li-Gang, chief greater China economist at ANZ based in Hong Kong, welcomed the increased bank lending.

“It’s a positive thing for the Chinese economy. People had worried that the central bank provided a lot of liquidity in the banking system. but banks failed to lend the money to projects on the ground. Now it seems banks are quite active in lending the money out.”

While Chinese economic growth is lukewarm and corporate profitability sluggish, there is real demand for bank loans from “good companies”, said Liu.

“It’s certainly not right to think that the credit is simply lent out to zombie companies to keep them alive,” he added.

Long-term loans with a maturity longer than a year to corporate and governmental agencies amounted to 1.06 trillion yuan in January, the biggest component in January’s lending, according to the central bank.

The growth in long-term lending was significant, according to Tao Dong, chief economist for Asia, excluding Japan, at Credit Suisse.

A large portion of the cash went to local government platforms as they were often regarded by lenders as safer than private businesses, Tao wrote in a research note.

Shen Jianguang, the chief economist at Mizuho Securities Asia in Hong Kong, said the lending spree last month was unlikely to be maintained and bank credit for the whole year was expected to be within 12 trillion yuan.

While a surge in bank lending will help growth and ease deflationary pressures, Shen said a flood of bank credit may impede China’s efforts to reduce debt levels.

“If you allow banks to lend so aggressively, how can you lower the debt ratio in the economy?” Shen said.

Banks will also face growing pressures from non-performing loans, especially for credit granted to the mining, steel and shipbuilding sectors, he said.

It was too early, however, to talk of signs of a banking crisis in China, he added.

The risk of bad loans is rising rapidly on the mainland and undisciplined lending from banks is set to add to pressure weakening the yuan exchange rate despite signs of the currency stabilising in recent days.

Kyle Bass, the founder of Hayman Capital Management, wrote in a note to investors last week that “Rapid credit expansion in the Chinese banking system will result in significant credit losses that will require the recapitalisation of Chinese banks and materially pressure the Chinese currency”.

The top US hedge fund manager warned that China’s banking system losses “could exceed 400 per cent of the US banking losses incurred during the subprime crisis”.

Bass wrote that China has conducted the “largest banking system experiment in world history” by encouraging its banks to undertake massive infrastructure funding programmes.

Chinese banks will lose approximately US$3.5 trillion of equity if China’s banking system loses 10 per cent of assets, he wrote.

http://www.scmp.com/sites/default/fi...?itok=5kh87S7l

A woman walks past an advertisement for a US currency deposit financial product at a branch of a commercial bank in a business district of Beijing. Photo: Reuters

Chinese commercial banks ended last year with non-performing loans at their highest ratio since June 2009, according to official data.

The China Banking Regulatory Commission said on Monday that 1.67 per cent of loans by year-end were non-performing, up from 1.25 per cent a year earlier.

In terms of value, the stockpile of problematic loans on Chinese bank account books hit a decade high at the end of 2015.

Meanwhile, the People’s Bank of China is clearly aware of the correlations between domestic lending and the yuan exchange rate.

In its latest quarterly monetary policy implementation report, the central bank said it was reluctant to ease monetary policy too much to hurt the stability of the yuan.

A cut in banks’ required reserve ratio may lead to “growing pressure on the local currency to depreciate”, capital outflows and a drop in foreign exchange reserves, according to the central bank report.

Liu at ANZ described the central bank’s comments as very unwise.

“You can’t kidnap domestic monetary policymaking with exchange rate concerns,” he said. “If the economic situation worsens, the fundamentals of a currency worsens. If you can’t stabilise the economy, you can never stabilise the value of your currency.”

Thanks to strong bank credit, the broad measure of credit available for the Chinese economy also hit an all-time high in January.

China’s aggregate social financing, which covers bank loans, trusted loans, commercial paper credit, bonds and stock financing, stood at 3.42 trillion yuan in January, nearly double the 1.82 trillion yuan in December last year.

Among other financial indicators released by the central bank on Tuesday, bank loans in foreign currencies dropped US$6.8 billion in January as Chinese companies sought to reduce their exposure to debts in US dollars while deposits in foreign exchange increased US$19.6 billion.

The broad measure of money supply, M2, rose 14 per cent at the end of January, accelerating slightly from the previous month.






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