New bank loans in China declined 6.5% year over year in September after a surge in August, reflecting the multiple challenges facing the world's second-biggest economy.
Chinese banks extended 2.31 trillion yuan of new domestic currency loans in September, compared with 2.47 trillion yuan in the same month a year earlier, according to data released Oct. 13 by the People's Bank of China. In August, however, the loan volume increased 8.8% year over year to 1.36 trillion yuan, following a 50.4% decline in July from just 435.9 billion yuan.
Total social financing rose to 4.12 trillion yuan in September, a 32% increase from August and 16.5% increase year over year. This came after the broad measure of credit and liquidity in the economy slumped to a seven-year low of 528.2 billion yuan in July.
"We remain cautious about the [credit] growth outlook, as recent stabilization could be short-lived and the economy still faces strong headwinds from fading pent-up demand for in-person services, contracting exports and the faltering property sector," Nomura said in an Oct. 15 note.
Weak housing
The Chinese economy faces a number of challenges, including a weak housing market, sluggish exports and tepid domestic demand. As part of an effort to boost confidence and stimulate the economy, Chinese authorities have cut interest rates, loosened restrictions on home buying and advised banks to expand lending.
Nomura noted that medium- to long-term household loans, mostly mortgage loans, improved significantly as interest rates declined.
But "the root causes of China's current economic woes are more structural than cyclical, and require policies well beyond just stimulus," Nomura said, and "the best policy package should be a mix of measures that can bolster aggregate demand, efficiently allocate capital and boost the confidence of the domestic private sector and foreign investors."
Loan mix
Corporate loans declined by 7.0% year over year to 1.25 trillion yuan in September, according to an Oct. 15 Morgan Stanley note. "Long-term corporate growth will continue to moderate with pressure from both the infrastructure and industrial sectors," it said.
The housing market may see the effects of easing policies, Morgan Stanley said, adding that it believes mortgage origination will continue to expand as housing sales gradually stabilize.
"We think a loan mix shift from corporate to retail could provide downside support to banks' net interest margin if the trend continues," the US investment bank added.
As of Oct. 16, US$1 was equivalent to 7.31 Chinese yuan.
