China banks slip into risk management mode
Key monetary data comes in below expectations
China’s banks wrapped up the first quarter on a cautious note, with most of the key monetary growth figures coming in below expectations and appearing to be heading lower.
China is keeping a tighter leash on credit growth as it adopts a less accommodative, or so-called “prudent and neutral” monetary stance. In particular, top leaders have been trying to steer the economy clear of dangerous shoals surrounding the red-hot real estate market, a popular final destination of both corporate and household credits since 2016.
Banks extended 1.02 trillion yuan (US$150 billion) of fresh loans in March. Economists polled by Bloomberg had expected the monthly sum to hit 1.2 trillion yuan following February’s 1.17 trillion rise. In the first quarter, total loans grew 4.22 trillion yuan, less than the 4.6 trillion in the corresponding period a year earlier.
The total amount of outstanding yuan loans at the end of the first quarter was 110.83 trillion, up 12.4% from a year earlier. That growth marked a slowdown from the 13% at the end of February and was a full 2.3 percentage points down from the end of 2016 comparison.
March broad money supply (M2) grew only 10.6% from a year earlier, slipping below the forecast of 11.1% and moving another bit further from this year’s 12% target. The broadest indicator of China’s monetary condition ended the quarter at 159.96 trillion yuan, up from 155 trillion yuan at the end of 2016.
A slower rise in the corporate and government department cash levels contributed to the smaller M2 growth, central bank data show.
Off-balance-sheet lending came to the fore once again, but not in a magnitude that threatens to be destabilizing. That propelled total social financing, the catch-all sum of all fundings for the real economy, to 2.12 trillion yuan for March, above the median forecast of 1.5 trillion yuan. Bond and equity sales also rebounded.
People’s Bank of China policymakers have been aiming to contain the growth of household credits, which has played a major role in inflating China’s land and real estate bubble.
The irony is that while many people feel property prices have reached unaffordable levels in the most popular cities, like Shenzhen, Shanghai, and Beijing, not many of them expect a dramatic correction in the coming 12 months.
Under newly appointed chief Guo Shuqing, the China Banking Regulatory Commission fired a warning shot across the bows of its troublesome charges on April 10. It named 10 major risks that banks need to tame, including those related to credit, liquidity, property, local government default, bond volatility and internet finance.
Under the country’s new “prudent and neutral” monetary policy, the Chinese central bank is seeking broad money supply growth of around 12% for the year ahead, as well as a reasonable expansion of total social financing, according to the government’s working paper released during the National People’s Congress in early March.