May 11, 2018 / 9:36 AM / 2 months ago

UPDATE 2-China April new loans rise but shadow lending shrinks

* China Jan-April loan growth 13.5, versus 7 pct in 2017

* New loans 1.18 trln yuan vs f’cast of 1.1 trln yuan

* M2 money supply up 8.3 pct y/y, vs f’cast of 8.5 pct

* TSF 1.56 trln yuan, vs 1.33 trln yuan in March

* Shadow loans shrink in April as crackdown persists (Adds details, analyst comment)

By Kevin Yao and Fang Cheng

BEIJING, May 11 (Reuters) - Chinese banks extended 1.18 trillion yuan ($186.37 billion) in net new yuan loans in April, up slightly from March and higher than expectations, as policymakers look to support the economy as it faces fresh risks from U.S. trade threats.

Friday’s credit data also showed Chinese regulators are continuing to make progress in their campaign to clamp down on riskier lending practices and shadow banking in the world’s second-largest economy.

Analysts polled by Reuters had seen new yuan loans of 1.1 trillion yuan, down slightly from March’s 1.12 trillion yuan.

“The upshot is that the ongoing regulatory crackdown and past monetary tightening remain a drag on credit growth. There are signs that the policy stance is now shifting,” Julian Evans-Pritchard at Capital Economics said in a note.

“Policymakers are discussing possible steps to support domestic demand and the PBOC has guided market interest rates lower since the start of the year. However, it will take a few quarters for any loosening of monetary policy to drive a turnaround in credit growth”

Banks extended 6.04 trillion yuan in the first four months of the year, up 13.5 percent from the same period last year.

But Capital Economics’ measure of growth of broad credit, which adjusts aggregate financing to the real economy to exclude equity and include government bonds, edged down to 12.1 percent in April, its slowest pace since 2006.

“Credit growth looks set to slow further, which should weigh on economic activity during the remainder of this year,” said Evans-Pritchard.

China’s banks extended a record 13.53 trillion yuan in new loans last year, 7 percent more than the previous record in 2016, as authorities sought to support domestic activity even as they clamped down on risks in the financial system.

The latest data showed corporate and personal demand for credit remained relatively solid in April, auguring well for continued resilience in the world’s second-largest economy.

Corporate loans rose to 572.6 billion yuan in April from 565.3 billion yuan a month earlier, while household loans, mostly mortgages, fell to 528.4 billion yuan in April from 580 billion yuan in March, according to central bank data.

Household loans accounted for 44.8 percent of total new loans in April, versus 52 percent in March.

Broad M2 money supply — which is being closed watched by investors for signs of China’s intentions on credit growth — grew 8.3 percent in April from a year earlier. That missed forecasts for an expansion of 8.5 percent but was up marginally from 8.2 percent in March.

Outstanding yuan loans grew 12.7 percent from a year earlier, in line with expectations and easing slightly from March.

Chinese banks’ loan books have also grown in recent months as regulators force them to bring so-called “non standard” assets onto their balance sheets to improve transparency. Those assets are often riskier products linked to shadow banking.

PUSH OR PAUSE?

China is in the third year of a regulatory push to reduce risks in the financial system that have been fueled by a rapid build-up in debt, which the Bank for International Settlements has warned could lead to a banking crisis.

But some analysts believe any fresh measures to bring down debt levels may be on hold for now, as policymakers wait to see if a simmering trade dispute with the United States inflicts further pressure on the economy.

Despite a stronger-than-expected 6.8 percent expansion in the first quarter, analysts still expect China’s economic growth to slow to around 6.5 percent this year, even without any trade shocks.

The government’s “de-risking” campaign had been slowly pushing up borrowing costs, which was expected to gradually drag on demand and investment and lead to more debt defaults.

Those growth worries intensified in April as the U.S. and China threatened to slap each other with tit-for-tat tariffs on each other’s goods. Soft March industrial and investment data added to the concerns.

However, money market rates and bond yields have slipped in recent weeks since China’s central bank unexpectedly cut reserve requirement ratios (RRR) on April 17 for most banks. The PBOC said the move would free up funds for lending to smaller firms and did not constitute a policy shift from a neutral stance to broad monetary easing.

FALLING SHADOW LOANS

Regulatory tightening measures already in the pipeline are still proceeding apace.

The central bank unveiled far-reaching rules on its $15 trillion asset management sector in April, including regulations on leverage limits and a ban on implicit guarantees.

It also published rules to restrict the issuance of short-term financing notes by brokerages, part of efforts to reduce leverage in the financial system.

But authorities are proceeding cautiously and keeping ample liquidity in the financial system to avoid any sharp drag on the economy or excessive financial market volatility.

China’s total social financing (TSF), a broad measure of credit and liquidity in the economy, rose to 1.56 trillion yuan in April from 1.33 trillion yuan in March. Some analysts had expected little change from the previous month.

Combined trust loans, entrusted loans and undiscounted bankers’ acceptances, which are common forms of shadow banking finance, fell by a net 12 billion yuan in April, according to Reuters calculations.

Reporting by Kevin Yao and Cheng Fang; Editing by Kim Coghill

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