China’s Credit Growth Slumps as Virus and Holidays Cut Loans

(Bloomberg) --

China’s overall credit growth slumped in February as the coronavirus outbreak weakened demand in what is historically a slow month for lending and the economy due to the lunar new year holiday.

• Aggregate financing increased 855.4 billion yuan ($123 billion) last month, compared to the median estimate in a Bloomberg survey of 1.6 trillion yuan.
• The stock of outstanding aggregate financing expanded by 10.7%, the same pace as in January, according to the statement from the People’s Bank of China.

Key Insights

• Financial institutions offered 905.7 billion yuan of new loans in the month, versus a projected 1.1 trillion yuan.
• Broad M2 money supply grew 8.8% from a year earlier.
• Economic activity in most of the country was curtailed by the shutdowns and quarantines, with some economists forecasting a quarterly contraction in the three months to March -- the first in decades
• Policy makers are likely to maintain for now their targeted easing approach to encourage companies to restart work and prevent spillovers from the global markets sell off this week.
• “The coronavirus epidemic hit household borrowing hard, especially consumer loans, and mortgages also increased just slightly,” China Minsheng Banking Corp. researcher Wen Bin said. “If companies can’t restart operation, the credit and total social financing will be dragged down as well.”

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• Loans comprised much of the net increase in credit in February, followed by corporate bond sales and government bond sales.
• Shadow banking returned to contraction, down a total of 485.7 billion yuan: entrusted loans fell 35.6 billion yuan; trust loans fell 54 billion yuan; and undiscounted banker’s acceptances fell 396.1 billion yuan.

--With assistance from Miao Han.

To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at yzhao300@bloomberg.net

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, James Mayger

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With assistance from Bloomberg