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China's July new loans dip more than expected, further easing seen

Illustration photo of a China yuan note

BEIJING (Reuters) - China's banks extended surprisingly fewer new loans in July, while growth of money supply and total social financing also slowed, raising pressure on the central bank to ease policy further to support the slowing economy.

The drop in new loans was likely exacerbated by seasonal factors.

Chinese regulators have been trying to boost bank lending and lower financing costs for over a year, especially for smaller and private companies which generate a sizeable share of the country's economic growth and jobs.

But some analysts say credit demand has not picked up as much as expected, possibly due to weak domestic orders and the deepening U.S.-China trade war, reinforcing views that more growth boosting measures will be needed to spur investment and stabilise activity.

Luo Yunfeng, an analyst at Merchants Securities in Beijing, said "the across-the-board slowdown in credit indicators is sharper than expected."

Chinese banks extended 1.06 trillion yuan ($150.06 billion) in new yuan loans in July, down from June and falling short of analysts' expectations, according to data released by the People's Bank of China on Monday.

Analysts polled by Reuters had predicted new yuan loans would fall to 1.25 trillion yuan in July, from 1.66 trillion yuan in the previous month.

Chinese banks usually make fewer loans in July after ramping up lending in June, but the data was lower than the tally in July 2018, when banks doled out 1.45 trillion yuan in new loans.

Household loans, mostly mortgages, fell to 511.2 billion yuan in July from 671.7 billion yuan in June, while corporate loans tumbled to 297.4 billion yuan from 910.5 billion yuan.

Broad M2 money supply in July grew 8.1% from a year earlier, central bank data showed, below estimates of 8.4% seen in the Reuters poll. It rose 8.5% in June.

Outstanding yuan loan grew 12.6% from a year earlier. Analysts had expected 12.8% growth, slower than June's 13.0%.

Some analysts say the annual comparison is a better way to assess trends in China's credit growth, rather than more volatile monthly readings.


Growth of outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, slowed to 10.7% in July from a year earlier and from 10.9% in June.

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.

In July, TSF fell to 1.01 trillion yuan from 2.26 trillion yuan in June. Analysts polled by Reuters had expected 1.5 trillion yuan.

China has been cutting reserve requirements for banks to help spur lending and lower borrowing costs, and further reductions are expected in the coming months.

"The latest slowdown in lending highlights the need for further monetary easing if policymakers are to succeed in putting a floor beneath growth," Julian Evans-Pritchard, senior China economist at Capital Economics said in a report.

The weighted average lending rate for companies and home buyers fell 3 basis points in the second quarter to 5.66%, after a rise of 5 basis points in the first quarter, the central bank said in a policy report on Friday.

Some analysts expect China to allow local governments to issue more debt this year as part of a plan to accelerate infrastructure spending and stoke domestic demand.

But local governments are already close to exhausting their annual bond quotas and special bond issuance dropped back last month as a result, Capital Economics said in an earlier note.

Others believe the government could boost funding support for infrastructure in the second half of the year.

(Reporting by Beijing Monitoring Desk and Kevin Yao; Editing by Jacqueline Wong)