Bank lending, broad money supply up in June

PBOC says flexible easing measures, prudent monetary policy to sustain growth momentum

Bank lending and broad money supply accelerated in June, as the monetary easing measures announced by the government started to yield results, the People's Bank of China said on Tuesday.

The central bank will retain the "prudent monetary policy" but make it more flexible to ensure a "reasonable" credit expansion with a proper market interest rate, said Sheng Songcheng, director of the PBOC's statistics department.

According to data from the central bank, the year-on-year growth of broad money supply, or the M2, speeded up to 11.8 percent in June from 10.8 percent in May, compared with 10.1 percent in April, after the PBOC lowered the amount of cash that lenders must keep as reserves. The liquidity injection at the end of June to arrest the stock market slump also boosted the growth in M2, economists said.

From a credit perspective, banks' yuan-denominated new loans came in at 1.27 trillion yuan ($204.8 billion) in June, higher than the market expectation, up from 900 billion yuan in May, the PBOC said.

During the first six months, new loans amounted to 6.56 trillion yuan, up from 5.7 trillion yuan during the same period last year.

Given the important role that credit growth has in China's overall economic growth, economists expect the key growth indicator, which will be released on Wednesday, to be on the strong side.

"The acceleration in M2 and lending indicates that there is enough liquidity in the market, something that augurs well for a rebound in the real economy," said Sheng.

Lending to the real estate sector grew sharply, with outstanding loans rising to 19.3 trillion yuan in June, up 19.4 percent year-on-year, compared with 18.9 percent in May. It suggested a rebound in property investment and house sales, Sheng said.

Total social financing stood at 1.86 trillion yuan in June, compared with 1.22 trillion yuan in May. Total social financing covers all bank loans and non-bank financing, including corporate bonds and direct financing from the stock market.

The off-balance-sheet financing, composed of bank acceptance bills, trust loans and entrust loans, accounted for 6.7 percent of total social financing during the first six months, down from 7.2 percent in the first five months.

This proportion shows the leverage rate in the financing market and the shadow banking factor, which was as high as 17.6 percent in 2014 and 30 percent in 2013.

Liu Ligang, chief economist in China at the Australia and New Zealand Banking Group Ltd, said: "It means the government has tightened regulations on shadow banking to prevent systemic financial risks. It also eases the market's concern that bank loans might have flowed into the stock market with high leverage rates through the shadow banking activities."

The PBOC said the country's foreign exchange reserves shrank to $3.69 trillion in the second quarter, down from $3.73 trillion in the first quarter. Economists speculated that the central bank has sold dollars to prop up the yuan.

The yuan-to-US dollar exchange rate, meanwhile, slightly appreciated by 0.09 percent from the end of 2014, to 6.1136 at the end of June.

Song Yu, an economist at Goldman Sachs Group Inc, said: "Policymakers may feel more comfortable with the newly released data, but the recent stock market turmoil will likely keep them on their toes in the near future."