China's bank loans dip in February, lending growth hits record low

Bank loans decline: China experienced a notable decline in new bank loans during February, surpassing analysts' expectations and marking a substantial dip from the previous month's record high. Despite efforts by the central bank to stimulate sluggish economic growth and combat deflationary pressures, Chinese banks extended 1.45 trillion yuan ($201.5 billion) in new yuan loans, falling short of anticipated figures.

Holiday timing impact

Outstanding yuan loans saw a growth of 10.1 per cent from a year earlier, reaching the lowest level on record compared to January's 10.4 per cent growth. This pullback was largely anticipated, as Chinese banks typically front-load loans at the start of the year to attract high-quality customers and gain market share. The timing of the Lunar New Year holiday, occurring in February this year as opposed to late January the previous year, likely contributed to the decrease in lending activity.

Analysts had predicted a decrease in new yuan loans to 1.50 trillion yuan for February, down from 4.92 trillion yuan the previous month and 1.81 trillion yuan a year earlier. However, the actual figures fell below these expectations, indicating limited immediate impact from February's required reserve ratio (RRR) cut.

Although the People's Bank of China (PBOC) has hinted at further RRR cuts, analysts express concerns about the effectiveness of such measures in stimulating the economy due to a lack of high-quality borrowing demand.

In the first two months of 2024, Chinese banks issued a total of 6.37 trillion yuan in new yuan loans. However, specific loan figures for February were not provided by the central bank.

Household loan plummet

Household loans, primarily mortgages, decreased by 590.7 billion yuan in February, while corporate loans dropped to 1.57 trillion yuan. These declines reflect the ongoing challenges in China's economy, with weak consumer and corporate confidence persisting since early 2023.

To boost the struggling property market and overall economy, the PBOC announced its largest-ever reduction in a key mortgage reference rate last month. Additionally, the central bank has expressed intentions to continue reducing the RRR.

Credit growth challenges

Despite efforts to spur economic growth, broad M2 money supply and total social financing (TSF) growth remained relatively subdued in February. TSF, which includes various forms of off-balance sheet financing, saw a significant decline to 1.56 trillion yuan from 6.5 trillion yuan in January, further highlighting the challenges in stimulating private sector credit demand.

Increased fiscal support, including higher government bond issuance and plans for special ultra-long-term treasury bonds, may help reaccelerate government borrowing. However, concerns persist regarding the severe headwinds from weak private sector credit demand.

(With Reuters Inputs)