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China bank loan growth set to slow further on tapering stimulus, lending curbs

Chinese banks are likely to see credit growth continuing to slow in 2021, as the government steps up measures to rein in mortgage lending and consumer loans and may at some point start to wind down COVID-19 stimulus measures, analysts say.

Total outstanding yuan loans at Chinese financial institutions reached a fresh record of 172.75 trillion yuan as of Dec. 31, 2020, up 12.82% from 153.11 trillion yuan a year ago, according to data from the People's Bank of China. However, on a monthly basis, the loan growth in December 2020 fell for the seventh straight month, which was still up 12.82% year over year.

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"We expect growth rates of money supply, lending and [total social] financing to fall moderately in 2021 from 2020 level," which will slow the momentum of bank loan growth, said Bruce Pang, head of macro and strategy research at China Renaissance Securities (Hong Kong).

PBOC data show that the growth rates of China's broad money supply and total social financing as of 2020-end were up 1.4 percentage points and 2.6 percentage points, respectively, from a year earlier. As of Dec. 31, 2020, broad money supply stood at 218.68 trillion yuan, increasing by 10.1% year over year, while outstanding total social financing rose 13.3% to 284.83 trillion yuan.

Among various loan types, household loans continued to be the main driver of new credit, as outstanding loan balance in December 2020 grew 14.22% year over year. Outstanding loans to nonfinancial enterprises and government departments and organizations rose 12.64% year over year, while outstanding loans at nonbanking financial organizations plunged 47.89% in December 2020, the seventh consecutive month of contraction.

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Rory Green, economist at TS Lombard, however, expects housing loan growth may slow in 2021.

"The share of lending to [small and medium-sized enterprises is expected] to rise at the expense of lending to the property sector," Green said. He added, however, that household loans will still be the main driver of credit growth but restrictions on mortgages and slower property price gains will weigh on its growth.

Beijing has been asking banks to lend more aggressively to small businesses, which are hit hard by the pandemic and the global economic slowdown. In May 2020, the government asked large commercial banks to increase lending to small businesses by more than 40% in 2020 from a year earlier. Data shows that year-over-year outstanding loan growth peaked at a record 13.22% in May 2020 as lenders heeded the government's call for more lending. China, whose GDP grew 2.3% in 2020, became the only major economy in the world to avoid a GDP decline in 2020.

As of Feb. 1, US$1 was equivalent to 6.47 Chinese yuan.