China’s new bank loans and overall credit expansion in February fall short of market expectations, with the total social financing still highly reliant on government bond issuances.
Banks extended 6.14 trillion yuan of new loans during the first two months of the year, according to data released by the People’s Bank of China.
In February alone, new bank loans reached 1.01 trillion last month, which is 440 billion yuan less than the same period last year, according to calculations based on PBOC data.
Total social financing, a broad measure of liquidity and credit in the economy, increased by 9.29 trillion yuan in the January – February period, which is 1.32 trillion yuan more than the same period last year. In February alone, TSF increased by 2.23 trillion yuan, which is 737.4 billion yuan more than the prior year.
This data did not meet market expectations. A survey of economists at 14 institutions showed new yuan loans for February was expected to average 1.34 trillion yuan, and the total social financing was expected at 2.4 trillion yuan.
In breakdown, household loans fell by 389.1 billion yuan, narrowing by 201.6 billion yuan from the decrease a year earlier, with short-term loans falling by 274.1 billion yuan, and medium- and long-term loans down by 115 billion yuan.
While the market had expected a “small spring” in the real estate sector, the previous improvement in medium- and long-term loans for the household sector did not continue last month. A real estate analyst notes that the decline in medium- and long-term loans for the sector is likely due to seasonal factors, but it also reflects that the overall housing demand remained weak.
Lu Zhe, Chief Economist at Dongwu Securities, believes that the reduction in early repayments from households, driven by mortgage rate cuts in the fourth quarter of 2024 and the second round of cuts for existing housing loans, has led to improvements in household loans.
The recent focus of the Two Sessions on boosting consumption and the PBOC’s comments about researching ways to raise consumption loan limits and extend loan terms should stimulate short-term household loan growth, Lu says.
Corporate loans increased by 1.04 trillion yuan in February, 530 billion yuan less than last year, with short-term loans rising by 330 billion yuan, medium- and long-term loans rising by 540 billion yuan, and bill financing up 169.3 billion yuan.
Bills were the only category to show a year-on-year increase. Analysts from CICC note that state-owned banks’ loan growth largely relied on bill financing in January, a trend that continued in February, and small and medium-sized banks’ credit growth in January was driven by the “early deployment, early benefit” strategy and the Chinese New Year effect, which is expected to be followed by a slowdown February and March following the “early growth,” the analysts say.
In terms of total social financing, February saw an increase of 2.23 trillion yuan, 737.4 billion yuan more than last year, with net government bond financing reaching 1.7 trillion yuan, 1.1 trillion yuan more than the previous year, and net financing of corporate bonds reaching 170.2 billion yuan, an increase of 27.9 billion yuan from last year.
The rapid issuance of government bonds has been a key factor in supporting the growth of social financing, and corporate bond financing has also provided some support.
Notably, nearly 800 billion yuan of local government bond for hidden debt swaps were issued in February. Analysts predict that, as the bond swaps accelerate, financing platforms and other entities will use the funds to repay bank loans, which could temporarily affect the total credit supply.
The PBOC data also showed that China’s M2 money supply grew 7% year-on-year, in line with expectations. M1 grew by 0.1%, an acceleration of 1.8 percentage points from January.
