Chinese bank lending weak again

Advertisement

Courtesy of Also Sprach Analyst.

Since late last month, we have seen more obvious signs that the Chinese government has started to reflate the economy both in the language of officials and in what the government is doing. We are probably now seeing more signs.

Last month around this time, I noted that the big four banks had almost loaned nothing in the first half of May. The May new loans number ultimately beat estimates only through a rush to lend in the last weak. This month, we are somewhat better, but only because of the low figure in May. The big four banks have lent about RMB25 billion according to China Securities Journal, which is a very weak number, highlighting weak demand for credit, consistent with the idea that the corporate sector is deleveraging. On the other side of banks’ balance sheets, deposits are falling again. Deposits in the big four banks fell by RMB272 billion in the first week of June. However, the report also quoted sources from banks that because lending will speed up towards the month-end and quarter-end, new loans for June could get to RMB 900 billion to RMB1 trillion.

If you think that RMB1 trillion of new loans sounds a bit of a stretch given the big four have only loaned RMB25 billion, that’s because it is. Big four banks account for roughly 40% of total loans outstanding in the banking system. If big four banks have loaned RMB25 billion, the whole of banking system could have laoned roughly RMB62.5 billion in the first half. At this rate, total loans for the whole month would only get to some RMB125 billion. If these banks are really able to lend RMB1 trillion or so in June, banks will be lending money like crazy towards the end of the month. Of course, it is possible that it happens based on the pattern of bank lending in China. Despite weak demand for credit from private sector, banks are being forced to lend.

Advertisement

Whether that will be enough to avert debt deflation is yet to be seen. It is my view that a colossal sum of money will be required, and we are still far from there.