China’s bank loan growth set to slow further due to reduced stimulus and lending restrictions

Chinese banks are expected to see credit growth continue to slow in 2021 as the government steps up measures to curb mortgages and consumer lending and could at some point start to slow COVID-19 stimulus measures, analysts say.

Total yuan-denominated loans outstanding with Chinese financial institutions hit a new high of 172.75 trillion yuan as of Dec. 31, 2020, up 12.82 percent from 153.11 trillion yuan a year ago, according to data. People’s Bank of China data. However, on a monthly basis, loan growth in December 2020 fell for the seventh consecutive month, which was still up 12.82% year-over-year.

“We expect growth rates in money supply, loans and [total social] funding is expected to decline moderately in 2021 from 2020 levels,” which will slow the growth momentum in bank lending, said Bruce Pang, head of macro and strategy research at China Renaissance Securities (Hong Kong).

PBOC data shows that China’s broad money and total social finance growth rates at the end of 2020 increased by 1.4 percentage points and 2.6 percentage points, respectively. , compared to the previous year. As of December 31, 2020, broad money supply stood at 218.68 trillion yuan, up 10.1% year-on-year, while total social finance stock increased by 13 .3% to 284.83 trillion yuan.

Among the different types of loans, loans to households continued to be the main driver of new credit, with outstanding loans in December 2020 increasing by 14.22% year-on-year. Outstanding loans to non-financial businesses and government departments and agencies increased 12.64% year-on-year, while outstanding loans to non-bank financial organizations fell 47.89% in December 2020, the seventh consecutive month of contraction.

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Rory Green, an economist at TS Lombard, expects home loan growth to slow in 2021, however.

“The share of loans to [small and medium-sized enterprises is expected] increase at the expense of lending to the real estate sector,” Green said. He added, however, that household lending would remain the main driver of credit growth, but restrictions on mortgage lending and slowing house price growth would weigh on its growth.

Beijing has asked banks to lend more aggressively to small businesses, which are being hit hard by the pandemic and the global economic downturn. In May 2020, the government asked major commercial banks to increase lending to small businesses by more than 40% in 2020 compared to the previous year. Data shows that year-on-year loan growth peaked at a record 13.22% in May 2020 as lenders responded to the government’s call for more lending. China, whose GDP has increased 2.3% in 2020, became the only major economy in the world to avoid a drop in GDP in 2020.

As of February 1, 1 US dollar was equivalent to 6.47 Chinese yuan.

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