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Loans dip likely in July, analysts say

By Wang Bo (China Daily)
Updated: 2009-08-04 08:12

Bank lending could decelerate to between 400 and 600 billion yuan in July despite a central bank commitment to maintaining a loose monetary policy, analysts said.

"A big fall from the monthly levels in the first half is bound to take place in July, as banks usually rein in lending after a credit burst in June," Dong Xian'an, chief economist with Industrial Securities, said, attributing the slowdown in loan creation to seasonal adjustments.

New yuan loans in July, though it could be significantly lower than the average monthly level of 1.23 trillion yuan in the six months to June, will maintain a strong growth momentum compared with last year, registering a year-on-year growth of 34.5 percent, Dong said.

In the first six months, Chinese banks issued a colossal 7.37 trillion yuan in new loans, equivalent to 25 percent of the nation's GDP. In July, new lending by the nation's big four State-owned banks saw a steep fall, reaching just 165 billion yuan, Reuters quoted unidentified banking sources as saying.

Industrial and Commercial Bank of China, the world's largest bank by market value, is reported to have only given out 30 billion yuan in new loans in July, echoing the bank's earlier move to cap its annual lending target at 1 trillion yuan. The bank has so far lent 825.5 billion yuan in the first half.

Though the four banks lent up to 45 percent of the total in the first half of the year, analysts said shareholding commercial lenders could become major sources of lending during the remainder of the year.

"Big banks mainly finance major infrastructure projects, while mid-sized lenders will flex their muscle as corporate demand for loans recover later this year," Dong said.

"Strong economic rebound will keep spurring investment and loan demand, which will help lending growth to outpace that of previous years in the second half," he said.

Fu Lichun, a banking analyst with Southwest Securities, said Chinese banks could add 3 trillion yuan in new loans in the second half, bringing the total new lending for the whole year to above 10.5 trillion yuan.

Part of the new credit in the rest of the year will focus on follow-up investment on infrastructure projects.

Related readings:  Liquidity crunch, loan limits stop market rally  China's bank loan total exceeds full-year target  Banking regulator warns of risks in loan spree  ICBC's May loan growth slows to 50 billion yuan

Small- and medium-sized enterprises' demand for short-term loans was also expected to rebound during the period, he said.

In response to market worries about liquidity drying up due to possible tightened lending in the remaining months, the central bank reiterated its commitment to a moderately loose monetary policy last week, but regulators also raised concerns that lending might also fuel stock and property market bubbles.

In the past week, the China Banking Regulatory Commission issued rules governing loans for infrastructure investments and working capital in a bid to make sure lending was being properly channeled into the real economy.

It is reported that the banking regulator was considering restricting the use of subordinated bonds to boost banks' capital base in an effort to improve lenders' risk control.