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China Oct new bank loans fall less than expected, policy easing on track

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By Judy Hua and Kevin Yao

BEIJING () -New bank lending in China fell less than expected in October from the previous month, even after policymakers ramped up measures including cutting banks’ reserve requirement ratios to get the shaky economy back on more solid footing.

Chinese banks extended 738.4 billion yuan ($101.3 billion) in new yuan loans in October, down from 2.31 trillion yuan in September but exceeding analysts’ expectations, according to data released by the People’s Bank of China on Monday.

Analysts polled by had predicted new yuan loans would dip to 665 billion yuan in October due largely to seasonal factors. The reading was higher than 615.2 billion yuan a year earlier.

“Affected by factors such as seasonal effects and unsteady economic recovery, October bank lending dropped month-on-month, but the overall trend remains stable,” said Wen Bin, chief economist at Minsheng Bank.

Household loans, including mortgages, contracted by 34.6 billion yuan in October after rising 858.5 billion yuan in September. Corporate loans fell to 516.3 billion yuan from 1.68 trillion yuan in September.

New yuan loans totalled 20.49 trillion yuan in the first 10 months, on track for another year of record bank lending.

Beijing has been ramping up measures to support the economy, including announcing a 1 trillion yuan ($137.43 billion) sovereign bond issuance and allowing local governments to frontload part of their 2024 bond quotas.

But a deep property crisis, local debt risks and policy divergences with the West are all complicating the recovery process, highlighted by persistent deflationary pressures.

The People’s Bank of China (PBOC), which has delivered modest interest rate cuts and pumped out more cash into the economy in recent months, has pledged to keep up policy support.

In September, the PBOC cut banks’ reserve requirement ratio for the second time this year to free up more funds to lend, and analysts expect another cut in the coming weeks.

POLICY EASING EXPECTED

Many analysts expect the central bank to pump out more cash to ease liquidity strains due to an expected surge in debt offerings.

“China will rely mainly on fiscal policy to bolster economic growth, monetary policy will coordinate with fiscal policy,” said Luo Yunfeng, an economist at Huajin Securities.

“The central bank is likely to cut reserve requirement ratios again if market liquidity tightens due to the sovereign bond issuance.”

China can raise its budget deficit ratio next year to support the economic recovery because there is still space for the central government to issue more debt, a policy advisor to the central bank said last week.

Broad M2 money supply grew 10.3% from a year earlier, central bank data showed, in line with analyst forecasts in the poll. M2 grew 10.3% in September from a year ago.

Outstanding yuan loans grew 10.9% in October from a year earlier compared with 10.9% growth in September. Analysts had expected the pace of growth to remain steady.

Annual growth of outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, quickened to 9.3% in October from 9.0% in September, as local governments rushed to issue refinancing bonds to repay their existing debt.

TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offerings, loans from trust companies and bond sales.

In October, TSF fell to 1.85 trillion yuan from 4.12 trillion yuan in September. Analysts polled by had expected October TSF of 1.90 trillion yuan.

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