Nov. 12 (Bloomberg) — China’s new yuan loans fell 14 percent in October from a year earlier, damping signs the world’s second-biggest economy is recovering after a seven-quarter slowdown.
Banks extended 505.2 billion yuan ($81.1 billion) of local- currency loans in October, the Beijing-based People’s Bank of China said on its website today. That compares with the median estimate of 590 billion yuan in a Bloomberg News survey of 28 analysts and 586.8 billion yuan a year earlier.
Today’s report compares with data last week that showed an improving economic outlook as the ruling Communist Party holds a congress in Beijing to anoint new leaders. China needs to prepare for prolonged challenges including the debt turmoil in some countries and sluggish global growth, Zhang Ping, head of the National Development and Reform Commission, said Nov. 10.
“Weaker lending suggests banks’ caution in providing financing” amid “uncertain” circumstances outside China and lower corporate profitability, said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong.
The Shanghai Composite Index was up 0.2 percent as of 10:35 a.m. local time.
Aggregate financing, an indicator designed to capture additional funding sources, including trust loans and bond and stock issuance, was 1.29 trillion yuan in October, up 63 percent from a year earlier and down from 1.65 trillion yuan in September. In the first 10 months of 2012, the gauge rose about 23 percent to 13 trillion yuan, today’s statement showed. The statement didn’t include money-supply data.
The year-over-year increase in aggregate financing suggests that “there will be enough funds to ensure implementation of stimulus measures and that growth acceleration will continue,” Kowalczyk said.
Analysts’ estimates for new loans ranged from 550 billion yuan to 801.6 billion yuan. Lending totaled 623.2 billion yuan in September.
Expansion in new loans was at a “reasonable scale” in September and October, indicating that the practice of injecting funds into the market through reverse-repurchase agreements has ensured that the banking system has abundant liquidity to meet needs in the economy, Financial News, a PBOC publication, said in a commentary today.
Bank of China Ltd., the nation’s fourth-largest lender by market value, forecasts that loan quality will improve next year as the economy stabilizes, President Li Lihui said. While facing “some volatility,” measures of soured loans will stay in an “excellent range” at the Beijing-based lender, Li said in an interview last week during the party congress, without providing figures.
The PBOC cut interest rates in June and July to boost lending and allowed banks to offer bigger discounts on loans to reduce the repayment burden on companies already hurt by rising costs and cooling sales amid the economic slowdown.
The central bank also lowered reserve requirement ratios three times from November to May to free up funds for lending. It has refrained from further cuts, preferring to manage the amount of cash in the financial system using reverse repurchase agreements and other instruments to keep money-market interest rates steady.
Reverse-repurchase agreements have replaced the deposit reserve requirements as the central bank’s top monetary-policy tool, the Financial News, a PBOC publication, said in a commentary today.
Speaking at the congress on Nov. 8, Governor Zhou said central bank policy next year should be targeted and flexible while also maintaining room for adjustment, as the economy faces potential risks including the so-called U.S. fiscal cliff. That refers to $607 billion in federal spending cuts and tax increases scheduled to take effect in January unless the nation’s legislature acts.
Zhou, speaking at a briefing in Beijing yesterday, highlighted the effects on China of what he termed five years of crisis, adding to officials’ cautions on the economic outlook even after a rebound in exports and industrial production.
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–Nerys Avery, Zheng Lifei. With assistance from Ailing Tan in Singapore. Editors: Scott Lanman, Paul Panckhurst
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