China's bank lending on track, money supply jumps

Source: Reuters

Chinese banks made 792.9 billion yuan ($129.3 billion) of new loans in April, largely in line with market expectations, while money supply jumped as the central bank kept policy accommodative to support the economy. The lending figure, issued by the People's Bank of China on Friday, was a shade lower than the median forecast of 800 billion yuan, which compared to March's 1.06 trillion yuan.

The broad M2 money supply jumped 16.1 percent in April from a year earlier, the People's Bank of China said in a statement on its website, www.pbc.gov.cn, above a median forecast of 15.5 percent in a Reuters poll. "The M2 growth in April is much higher than expectations while the new yuan loans is in line with market consensus. It is likely a reflection of rising capital inflows, which in turn pushes up the domestic money supply," said Li Huiyong, an economist at Shenyin & Wanguo Securities in Shanghai "We expect the M2 growth will stay at an annual growth of 15 percent in the second quarter due to the loose global liquidity conditions."

The slowdown in April lending was widely expected as Chinese banks tend to front-load lending early in the year to book as much interest income as possible. The government has unveiled fresh measures to cool the property sector and taken steps to curb credit flows for debt-ridden local governments to ward off financial risks. The central bank is stepping up its efforts to drain additional cash from the money market to cope with a surge in capital inflows and rein in credit growth.

China has given no public forecast for new lending this year, but analysts widely expect a figure near 9.0 trillion yuan, up from 8.2 trillion in 2012, to help deliver an official GDP growth target of 7.5 percent in 2013. The central bank aims for annual M2 growth of 13 percent for 2013, but the latest data may cast doubt on whether the target will be hit if the central bank keeps policy relatively loose.

Outstanding yuan loans grew by 14.9 percent from a year earlier, in line with forecast.

Bank lending remains the centrepiece of China's monetary system and banks lend at Beijing's behest, although off-balance sheet financing channels are gaining in significance as China gradually relaxes controls and makes market-oriented reforms.

The total social financing - a broad measure of liquidity in the economy, totalled 1.75 trillion yuan in April, central bank data showed, down from 2.54 trillion. Chinese regulators have taken some steps to rein in the rapid rise in the shadow financing activity amid growing concerns about potential financial risks.

The PBOC said on Thursday that it will increase policy flexibility to support the economy while stressing the need to ward off inflationary risks. China's annual consumer inflation accelerated more than expected in April while factory prices fell for a 14th consecutive month, highlighting the dilemma facing the central bank as it balances support for the economy against the threat of rising prices.