Credit growth slows in June

In June, Chinese banks distributed CNY 2130 billion in new yuan loans, up from May’s 950 billion figure but slightly below market expectations. Money supply expanded 6.2% year on year in June (May: +7.0% yoy). The figure marked the worst reading on record. Finally, 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 8.1% in the month (May: 8.4% yoy). The slowdown in credit in June was likely linked to soft domestic demand plus some methodological changes to financial sector GDP calculations. Regarding monetary policy, key interest rates were kept unchanged over the last month.

On the data, Nomura analysts said: “Breakdown data show that loan growth was still the pre-dominant drag on total TSF growth, as the regulatory drive to depress and clear up artificially-inflated loan numbers continued to have a meaningful impact on credit data. As Governor Pan said last month that recent efforts to optimise the method of financial sector GDP calculations and the subsequent result of slowing loan growth and credit expansion are to be expected in the near-term, and it is not meant to reflect any change in the PBoC’s monetary policy stance, but to improve the efficacy of monetary transmission.”

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