By Kevin Yao and Judy Hua
BEIJING (Reuters) – New bank lending in China fell more than expected in February from a record in January, but the drop was likely due to seasonal factors as policymakers stepped up support for the economy jolted by a coronavirus outbreak.
Chinese banks extended 905.7 billion yuan ($130.24 billion) in new yuan loans in February, down from a record 3.34 trillion yuan in January and missing analyst expectations, according to data released by the People’s Bank of China (PBOC) on Wednesday.
Analysts polled by Reuters had predicted new yuan loans would fall to 1.10 trillion yuan in February. The new loans were still higher than 885.8 billion yuan a year earlier.
A pull-back in lending in February was widely expected as Chinese banks tend to front-load loans at the beginning of the year to get higher-quality customers and win market share.
But the sharper-than-expected fall in new loans, especially household loans, likely reflected the impact of the virus outbreak that saw many banks and companies shut for most of February due to strict anti-contagion measures while the property market also ground to a halt.
Banks saw a net decline of 413.3 billion yuan in household loans in February compared with a rise of 634.1 billion yuan in January, while corporate loans dropped to 1.13 trillion yuan from 2.86 trillion yuan.
But despite the large-scale quarantine measures, outstanding yuan loans grew 12.1% from a year earlier – the same rate of growth as in January and in line with expectations.
“A drop in borrowing by consumers due to fewer property and car sales was offset by a pick-up in loans to companies, in large part thanks to official measures such as the PBOC’s special coronavirus relending facility,” Julian Evans-Pritchard, senior China economist, said in a research report.
Chinese regulators have been trying to boost bank lending and lower financing costs for more than a year, especially for smaller and private companies that generate a sizeable share of the country’s economic growth and jobs.
The flu-like respiratory disease that emerged late last year in the central city of Wuhan has infected more than 80,000 people and claimed around 3,200 lives on the Chinese mainland.
VIRUS JOLTS ECONOMY
Restrictions on movement and factory closures aimed at stopping the epidemic likely halved China’s economic growth in the first quarter compared with the previous three months, raising expectations for more interest rate cuts, the latest Reuters poll found.
The PBOC has rolled out a raft of easing steps to keep borrowing costs down and so cushion the blow on the economy, cutting the benchmark lending rate and making cheap subsidized loans to encourage bank lending to some firms amid the outbreak.
The PBOC has pumped trillions of yuan in liquidity into the system by delivering eight reductions in bank reserve requirement ratios (RRR) – the proportion of cash they must hold in reserves – since early 2018.
It is widely expected to cut the RRR again in coming weeks.
“There is space for cutting RRR and interest rates and it’s necessary to do so,” said Wen Bin, senior economist at Minsheng Bank in Beijing.
Broad M2 money supply in February grew 8.8% from a year earlier, central bank data showed on Wednesday, above estimates of 8.5% forecast in the Reuters poll. It rose 8.4% in January.
Growth of outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, was 10.7% in February, unchanged from 10.7% in January.
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 February, TSF tumbled to 855.4 billion yuan from 5.07 trillion yuan in January. Analysts polled by Reuters had expected February TSF of 1.6 trillion yuan.
The government has also rolled out fiscal support for businesses, including more funding for the fight against the coronavirus, tax waivers, social insurance fee cuts and subsidies for firms hardest-hit by the outbreak.
Local governments have issued 1.22 trillion yuan in bonds in the first two months of this year, including 949.8 billion yuan in special bonds, the finance ministry has said.
(Reporting by Judy Hua and Kevin Yao; Editing by Jacqueline Wong and Alex Richardson)
