New RMB Lending for July Expected to Rise 72.6% YoY, M2 Growth Seen Bouncing Back

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A new survey of analysts sees new lending of 800 billion yuan in July, for a slide compared to the preceding month yet a sharp rise compared to the same period last year.

The survey conducted by www.stcn.com forecasts a month-on-month contraction in new bank loans in China for July, following several consecutive months of increase which saw fresh lending reach a consensus-trumping total of 1.54 trillion yuan in June.

Analysts see seasonal factors playing a key role in easing loan growth, including mid-year macro-prudential assessments and financial reports that prompt banks to cut back on lending.

The consensus forecast of 800 billion yuan in new loans for July is nonetheless well ahead of the 463.6 billion yuan in new lending seen during the same period last year, for year-on-year growth of 72.6%.

According to analysts this year-on-year growth is due to strong demand for funds from the real economy, as well as the continued return of off-balance sheet financing back onto balance sheets following heightened scrutiny from regulators.

Shen Juan of Huatai Securities expect new lending to be dominated by medium-to-long term corporate loans, and personal loans to shift towards short-term consumer financing.

M2 growth expected to bounce back

Despite the month-on-month slide in new yuan loans, Bank of Communications Financial Research Centre does not expect growth in the M2 money supply to be adversely affected.

A new report from the centre expects M2 growth to bounce back to 9.7% in July after hitting a historic low of 9.4% in June.

The report makes the point, however, that the bounce is partially due to the low baseline for the same period last year, while the figure would still put China’s M2 growth below the 10% threshold for the third consecutive month.

Moderate pressure on new lending in the second half

New lending is likely to come under substantial pressure across the remainder of the year, with a report from China International Capital Corporation pointing out that “the majority of banks visited have already used up 70 – 80% of their lending allowance, and in the second half the lending amount will be comparatively tighter.”

CITIC Securities chief economist Chu Jianfang said, however, that the pressure on lending by the banking system in the second half will not be too heavy, and that despite ongoing gains in interest rates there has not yet been any decline in net corporate borrowing growth.

“Firstly, new credit for the first half of this year is only 400 billion yuan greater than the same period last year, which compared to the overall scale of 10 trillion yuan for the full year will not have a huge impact on the second half,” said Chu.

“Secondly, new commercial paper financing in the second half has been on a continuous downward trajectory. This means there isn’t much pressure on banks to use commercial paper to adjust lending amounts.”

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