Chinese banks have had an ‘absolutely monstrous’ month for new loans
BEIJING – Chinese banks recorded a record amount of new loans in January, as the government contain financial risks caused a transition to traditional lending from more obscure forms of financing.
As credit growth has generally slowed, new bank loans reached 2.9 trillion yuan ($ 461 billion) last month, up 43% from the previous year, according to data released on Monday. by the central bank. Total social financing, a catch-all term for various forms of credit which, in addition to bank loans, includes bonds and other types of non-bank loans, increased by 3.06 trillion yuan, a decrease of 17% from growth from the previous year. Bank loans accounted for 88% of all new credit.
Rather than reflecting a new round of government stimulus measures, the unexpected increase in bank lending was primarily driven by banks reintegrating loans into their accounts to meet demands from regulators, economists and analysts say. At the same time, businesses also increased their appetite for bank loans as other forms of financing became more difficult to find. In addition, Chinese banks tend to extend more credit at the start of the year.
“It’s an absolute monstrous number, no matter how you look at it,” said Christopher Balding, professor of economics at Peking University. The 2.9 trillion yuan granted in January accounted for nearly 60% of all loans granted in 2008, when China launched a massive stimulus package to shield the economy from the global financial crisis.
The rise in bank lending has been well above the forecasts of economists polled by the Wall Street Journal for 2.15 trillion yuan and underlines the difficult balance of decision-makers. Over the past two years, President Xi Jinping and his economic officials have made reducing skyrocketing debt levels a centerpiece of economic policy. But with executives pursuing a growth target that many saw as too high, state-owned enterprises and local governments continued to borrow in order to thrive.
Now we are realizing within the government that it is in fact impossible for China to reduce its debt levels or to stop relying on bank financing without hurting growth. As a result, the debt reduction target, as spelled out in the country’s economic plans for the past two years, has been relaxed into a debt growth control mission this year.
In recent months, the central government has halted new metro system construction projects across the country, including two separate $ 4 billion metro projects in Inner Mongolia.
These and other measures to control local borrowing could cause debt growth to slow this year, said Larry Hu, Chinese economist at Macquarie Group. This, in turn, could lead to weaker economic expansion, he added.
“If policymakers still want to maintain growth, they need to stimulate government investment, which would then defeat their debt relief efforts,” Hu said.
So far, the authorities have focused their efforts on reducing risks in the financial sector. In particular, they target a widespread practice whereby banks partner with outside financial firms to take loans off their balance sheets and then sell them as high-yield investments to individual savers. Such a strategy, which is particularly popular in small and medium-sized banks, has helped free up bank capital and made it easier to extend loan terms or new credits.
But it created a parallel build-up of debt and made the financial system more vulnerable to shocks such as a liquidity crisis. To stem the risk, regulators since last year have forced banks to be firm on off-book lending, cut short-term borrowing and adopt tighter risk controls.
As these measures have caused banks to return loans to their balance sheets, many lenders are starting to worry about a possible shortage of capital to guard against possible loan losses. This is one of the main reasons why many Chinese banks are opposing a new proposal to control off-book lending.
“It’s really tough for banks these days,” said an executive of a national lender based in northern China.
—Chao Deng contributed to this article.
Write to Lingling Wei at [email protected]
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