China: Credit growth picks up in May, although underlying credit demand remains soft
In May, Chinese banks distributed CNY 1.9 trillion (roughly USD 280 billion) in new yuan loans, up from April’s 0.6 trillion figure and beating market expectations. Annual growth in M2 money supply rose from 10.5% in April to 11.1% in May. Meanwhile, annual growth in the stock of total social financing (TSF)—a broader measure of credit and liquidity in the economy that includes loans, bonds and other non-traditional instruments—rose from 10.2% to 10.5%.
Despite the broad-based improvement in credit-related indicators in May, the figures were flattered by greater government bond financing and short-term corporate loans, suggesting that consumers and firms remain wary amid ongoing pandemic-related uncertainty. Regarding monetary policy, the PBOC’s last rate cut was to the 5-year Loan Prime Rate in mid-May. Going forward, our Consensus is for some modest additional cuts to other key policy rates by year-end.
On the near-term outlook for credit growth, analysts at Nomura said:
“In the next couple of months, we expect Beijing to speed up its government bond issuance and policy bank lending, so TSF growth may continue to pick up. However, faster credit growth may not fully address the supply-side constraints caused by Covid-19 controls.”
As for monetary policy, Ho Woei Chen, economist at United Overseas Bank, commented:
“The mild inflation backdrop continues to provide the PBOC with the room to ease its monetary policy. Coupled with the easing measures announced to-date, we continue to expect the 1Y LPR to move lower to 3.55% by end-Q3 2022. As for the 5Y LPR, it has reached our target for [a] 15 basis point cut to 4.45%.”