New yuan-denominated loans were 1.36 trillion yuan in February, up 454 billion yuan from a year earlier and well above market expectations (the average in a Bloomberg survey was 910 billion yuan). Concrete, 1.2 trillion (70 billion) compared to the new corporate loans, the new enterprises in the medium and long-term loans (684 billion) 1.1 trillion, year-on-year increase more significantly stronger, compared to the offset paper funding (contract 186 billion, year-on-year increase less 249 billion) and new enterprise short-term loans (405 billion) 250 billion, year-on-year increase less drag on weaker. In addition, short-term loans to households (down $269 billion, down $181 billion) and medium – and long-term loans (up $374 billion, up $411 billion) are both stronger than last year, especially for the latter. The sharp rise in new medium – and long-term loans to enterprises may indicate a rebound in business activity and a pick-up in credit demand, while the rise in new medium – and long-term loans to households may be attributed to the recent steady property sales and the fact that some banks may have issued mortgages as soon as possible in anticipation of further tightening of real estate policies. This is in sharp contrast to February last year, when medium – and long-term lending weakened sharply in response to the outbreak, while companies saw a surge in short-term financing needs in response to the outbreak.
Bank loans and undiscounted bills strengthened, and new social finance rebounded sharply year on year
In February, 1.71 trillion yuan of new social financing was added, much stronger than market expectations (950 billion yuan on average in a Bloomberg survey) and the level of the same period last year (836 billion yuan more than the same period last year). The new increase in social finance was mainly due to the sharp rebound of new bank loans (up 620 billion yuan year-on-year) and the more robust than expected undiscounted acceptance bills (up 64 billion yuan year-on-year). Both are likely to benefit from a faster return to normal business activity and solid property sales, which may also be partly affected by this year’s ‘local New Year’ policy. By contrast, last year’s outbreak caused a sharp drop in business operations and property sales. On the other hand, entrusted loans (-10 billion) and trust loans (-94 billion) remained weak, while corporate bonds (-131 billion, -259 billion) and net financing for government bonds (-102 billion, -81 billion) both slowed as expected.
Overall credit growth unexpectedly rebounded to 13.3 per cent, with the credit pulse marginally upward
Following January’s decline, our estimate of overall credit (excluding equity financing) and official social finance growth both increased by 0.3 percentage points to 13.3% in February, roughly the same as at the end of last year. Our estimated credit pulse bounced back by 0.4 percentage points to 7% of GDP. New credit flows edged up to 26% of GDP (3-month moving average vs. 25% previously) on a quarterly basis. From January to February combined, the new RMB loans were 4.94 trillion yuan and the new social financing scale was 6.88 trillion yuan, both stronger than the same period of last year (694 billion yuan and 957 billion yuan more than the same period of last year respectively). As was the case in February, the strength in new credit in January-February came mainly from bank loans and undiscounted acceptances, while net issuance of corporate and government bonds was significantly weaker than last year.
We continue to expect a gradual decline in overall credit growth
At this year’s two sessions, the government demanded that the growth of the money supply and social financing ‘basically match the growth of the nominal economy,’ and cut the official deficit-to-GDP ratio and the amount of new local government special debt. Given that the economy is expected to resume its sequential rebound in March and the second quarter, we expect the government to continue to normalize policy in the future, with overall credit growth slowing again from the high levels seen in January and February. We continue to expect liquidity and credit regulatory policies to tighten, driving overall credit growth to slow to around 10.8% by year-end, driven mainly by net government bond issuance and likely weakness in new bank loans and further contraction in shadow credit. The credit pulse is likely to turn negative in the second quarter. However, there may be some upside risk to our current forecast of 10.8% year-end credit growth, given stronger than expected new credit growth in January-February and a sharp rebound in economic activity.