Chinese Banks Continued to Exceed Loan-Volume Expectations in June

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Chinese banks extended higher-than-expected volume of loans last month even as growth in the money supply continued to slow amid Beijing's efforts to reduce leverage in its financial system.

New yuan loans issued by Chinese banks surged to 1.54 trillion yuan ($226.38 billion) in June, up from 1.11 trillion yuan in May, according to figures released by the People's Bank of China on Wednesday. The volume was well above the 1.3 trillion yuan forecast by economists polled by The Wall Street Journal.

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June is typically a high point for new credit from Chinese banks' as loan officers rush to meet quarterly targets. Beyond that, demand for credit from households -- mostly for mortgages in the hot property market -- remained strong, and companies too turned to banks for loans, instead of issuing bonds.

Crimping debt and other financial risks is a priority for Beijing this year, as Chinese leaders want a stable economic environment ahead of a shuffling of leadership posts this fall. Regulators have rolled out a raft of measures, from raising some short-term rates to rules forcing banks to unwind hidden loans and investments, with effects felt across the financial system from bond issues to the money supply.

Growth in M2 -- a broad measure of money supply which includes cash, checking and savings deposits and other time deposits -- slowed to 9.4% at the end of June from a year earlier, a record low since the central bank started releasing the data three decades ago. June's pace was lower than the 9.6% rise at the end of May and than market expectations.

Central bank spokeswoman Ruan Jianhong said that the deceleration of M2 growth was a result of slower expansion in banks' off-balance-sheet financing in response to the government's deleveraging efforts. This slower growth in M2, she said, will become a "new normal".

Lending to households, which is mostly made up by mortgage loans, stood at 738.4 billion yuan in June, up from 610.6 billion yuan in May, according to data from the central bank. Despite the increase in volume, household loans' share in total lending was down to 48% in June from 55% in May -- a decrease the central bank spokeswoman said was part of the effort to constrain property bubbles.

In another effect of Beijing's campaign, outstanding corporate bonds remained unchanged at the end of June, compared with May. Tighter liquidity has driven up yields, causing many companies to cancel issues of new bonds.

Total social financing, a broader measurement of credit that includes bank loans, corporate bonds and trust loans, reached 1.78 trillion yuan in June, compared with 1.06 trillion yuan in May, the central bank said, attributing the rise mainly to the robust growth in bank loans as well as other types of short-term loans.

After the economy posted a strong 6.9% rate of growth in the first quarter, economists expect that the government and People's Bank's effort to tackle debt will continue, with credit continuing to take a hit.

"Looking ahead, while we think the PBOC is now done pushing up interest rates, we expect the monetary tightening that has already taken place to continue weighing on credit growth in coming quarters," said Julian Evans-Pritchard, an economist with Capital Economics.

Grace Zhu

(END) Dow Jones Newswires

July 12, 2017 08:02 ET (12:02 GMT)