Loans issued by Chinese banks plunged in July from the prior month as credits lent to the real economy contracted for the first time in nearly two decades, reflecting continued tepid borrowing appetite in the world's second-largest economy.
New yuan loans stood at 260 billion yuan ($36.24 billion) in July, down sharply from 2.13 trillion yuan in June, according to calculations by The Wall Street Journal based on data from the People's Bank of China. The result was below the 400 billion yuan expected by economists in a Wall Street Journal poll.
While the drop in loans is largely a result of seasonality as July is typically a weak period for credit expansion and banks aren't in a hurry to meet their quarterly lending targets, the sharper-than-expected decline from the prior month also reflects persistently cautious attitudes among Chinese households and companies toward taking on more debt amid an uncertain economic outlook as the property slump drags on.
In particular, bank loans excluding those handed out to financial institutions dropped by 77 billion yuan in July from a month prior, marking the first such decline in 19 years. Economists say this will likely exacerbate concerns around the strength of the economy.
A breakdown of the headline figures show new household loans turned negative for the third time this year in July as they rushed to repay short-term debts. Meanwhile, longer-term loans taken by households, a proxy that gauges demand for residential mortgages and family businesses, barely grew in July.
"Weaker loan demand among households points to a prolonged slump in new property sales and lackluster consumption," economists at Barclays said. "We expect financially-constrained households to remain reluctant to add leverage given the uncertain employment and income outlook," they added.
Loan demand from Chinese businesses also weakened in July; corporate long-term loans more than halved compared with a year ago. In contrast, bill financing--a form of short-term bank lending--jumped in July. However, economists at Goldman Sachs caution that such a surge usually happens when banks try to fulfill unused loan quotas and likely points to weak credit demand.
Data released Tuesday also showed total social financing, which also includes non-bank credit, stood at 770 billion yuan last month, compared with 3.3 trillion yuan in June, official data showed Tuesday. Meanwhile, M2, the broadest measure of money supply, rose at a mild pace of 6.3% from a year earlier last month, compared with the 6.2% expansion seen in June and forecast by surveyed economists.
Chinese state media have often attributed recent months of slowing credit expansion to ongoing economic restructuring as Beijing moves away from over-reliance on investment in property and infrastructure. New growth drivers including the high-end manufacturing and green product sectors have yet to be able to fill in the loan demand gap, they say.
The recent crackdown of the People's Bank of China on banks offering preferential rates to attract clients, coupled with sustained deposit outflows to wealth management products for higher returns, has also contributed to China's sluggish money supply, economists say.
July's tepid credit data came after the PBOC announced a flurry of surprise rate cuts late last month, with commercial lenders following suit by cutting their loan prime rates, suggesting authorities' efforts to stimulate credit demand have failed to convince borrowers.
Despite the limited effects of rate cuts so far, economists widely anticipate further monetary easing to come in the near future given China's weak economic fundamentals, with the Federal Reserve's expected rate cuts set to give the PBOC more policy room.
With Beijing recently pledging to accelerate government bond issuance in the coming months, economists also expect stronger fiscal support would help boost broad credit growth for the rest of the year. Already, increased government bond issuance helped offset weaker private credit demand last month.
Write to Barcelona Editors at barcelonaeditors@dowjones.com
(END) Dow Jones Newswires
08-13-24 1211ET
