April 13, 2018 / 8:47 AM / 10 days ago

UPDATE 2-China March new loans rebound to 1.12 trln yuan as shadow banking retreats

* China March loan/money data largely below expectations

* New March loans 1.12 trln yuan but up from Feb

* M2 money supply growth falls to 8.2 pct from 8.8 pct in Feb

* Total social financing rises to 1.33 trln yuan in March

* Q1 new total social financing falls y/y

* Authorities continuing with crackdown on riskier financing (Adds detail, analyst comment)

By Elias Glenn and Fang Cheng

BEIJING, April 13 (Reuters) - Chinese banks doled out more loans in March and appeared to make solid progress in reining in off-balance sheet lending that has prompted a sweeping crackdown by regulators looking to reduce systemic financial risks.

The money and lending figures, along with trade data reported earlier on Friday, added to views that China’s economy has sustained solid growth momentum from late last year into early 2018, contrary to earlier expectations of a slight slowdown.

The financing data also suggested that authorities continue to make solid inroads in their campaign to clamp down on riskier lending practices and shadow banking without stunting economic growth.

Banks in China extended 1.12 trillion yuan ($178.23 billion) in net new yuan loans in March, rebounding from the previous month but just below expectations, data from the People’s Bank of China showed on Friday.

China’s total social financing (TSF), which provides a much broader measure of credit and liquidity in the economy, rose to 1.33 trillion yuan in March from 1.17 trillion yuan in February.

For the quarter, bank lending rose 15 percent year-on-year, significantly higher than economic growth, though new credit overall (measured by TSF) added to the economy fell nearly 20 percent from the year-ago period in the midst of Beijing’s crackdown on risk.

“The higher share of new loans in aggregate financing reflects the shrinking of shadow banking on the back of the tightening regulation. This is moving towards what the regulators would like to see,” said ANZ Senior China Economist Betty Wang.

TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offerings, loans from trust companies and bond sales.

That can provide hints of activity in China’s vast and unregulated shadow banking sector and its inter-linkages with commercial financial institutions, which authorities have also been targeting.

Within TSF, there was a sharp jump in bond issuance and drops in entrusted loans, trust loans and bankers’ acceptances in March.

“The slowdown in broad credit growth that has been underway since mid-2016 showed no signs of abating last month,” Capital Economics Senior China Economist Julian Evans-Pritchard wrote in a note.

Capital Economics said its own measure of broad credit growth in China declined from 12.9 percent to 12.1 percent in March, its slowest pace since 2006.

A pickup in bank loans amid a decline in overall credit growth indicates that more lending is coming from traditional bank loans, which are considered less risky than other forms of credit, an encouraging sign for China’s regulators.

Lending to non-financial corporations increased 16 percent in the first quarter to 3.06 trillion yuan.

Last week, China’s banking and insurance regulator said the country would crack down firmly on shadow banking, and would seek to push banks to bring off-balance sheet assets onto their balance sheets to give regulators a better idea of their risk exposure.

Outstanding total social financing increased 10.5 percent year-on-year in March, down from 11.2 percent growth in February.

NEW LOANS REBOUND

Analysts polled by Reuters had predicted new yuan loans of 1.2 trillion yuan, rebounding from February’s weaker-than-expected 839.3 billion yuan.

China’s banks extended a record 13.53 trillion yuan in new loans last year, 7 percent more than the previous high in 2016.

After banks doled out a record 2.9 trillion yuan in new yuan loans in January, they came under pressure from regulators to rein in lending, financial magazine Caixin reported in February, citing banking sources.

Beijing is in the second year of a regulatory push to reduce risks to the financial system that have been fueled by a rapid build-up in debt linked to stimulus campaigns.

While escalating U.S.-China trade tensions pose a risk for economic growth, the threat has not reached a point where China is likely to change its monetary policy, the Bank of Communications said in a recent report.

Long-term household loans, mostly mortgages, rose to 377 billion yuan in March from 322 billion yuan in February, according to PBOC data.

Overall new household loans totaled 580 billion yuan, 52 percent of total new loans in March, versus 33 percent in February.

Broad M2 money supply grew 8.2 percent in March from a year earlier, missing forecasts for an expansion of 8.9 percent and compared with 8.8 percent in February.

Premier Li Keqiang said in his annual work report in March that he expected reasonable growth in broad M2 money supply and total social financing this year, without giving hard targets.

Outstanding yuan loans grew 12.8 percent from a year earlier, slower than an expected 12.9 percent rise and the same pace as in February.

CRACKDOWN CONTINUES

Analysts expect a further tightening of the regulatory screws this year for the financial sector and local government debt.

China’s central bank published rules on Friday to restrict the issuance of short-term financing notes by brokerages.

But authorities are proceeding cautiously and keeping the financial system well supplied with cash to avoid any sharp drag on the world’s second-largest economy or excessive financial market volatility.

Separate data on Friday showed solid growth in China’s first quarter imports and exports, though a decline in March exports is likely to keep authorities vigilant for signs of any sustained slowdown.

China will release first-quarter GDP on Tuesday. Economists polled by Reuters expect the economy grew 6.8 percent from a year earlier, the same pace as the fourth quarter.

In January, analysts had forecast a slowdown to 6.6 percent, citing a cooling property market and rising borrowing costs which have been a byproduct of the regulatory tightening campaign.

$1 = 6.2841 Chinese yuan renminbi Reporting by Elias Glenn and Cheng Fang; additional reporting by Yawen Chen and Lusha Zhang; Editing by Kim Coghill

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