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New loans may reach 6.5t yuan in first half

By Wang Bo and Zhang Ran (China Daily)
Updated: 2009-06-23 08:01

Workers install electric poles at the Jiujiang bridge section of the Beijing-Kowloon electric railway. New loans in the first six months are set to hit 6.5 trillion yuan, with a big portion going to the infrastructure construction projects. [Xinhua]

China's new lending is expected to remain strong in next few months, with no signs of a slowdown. Analysts expect new yuan loans in June to probably exceed the level of May, with total new credit in the first half expected to touch 6 or 6.5 trillion yuan.

Chinese banks extended a total of 5.84 trillion yuan of local-currency loans in the first five months of the year, a record amount that easily topped the government's minimum target of 5 trillion yuan for the whole year.

In an effort to meet their self-set half-year credit targets, banks are racing to make loans in the remaining two weeks, which may push the new loan growth in June to a higher level, analysts pointed out.

Government-led infrastructure projects and recovering housing sales could also prop up bank lending in the coming months.

"Demand for financing infrastructure projects will continue to fuel the credit surge in June," said Wu Xiaoling, analyst, Greatwall Securities.

Related readings:  Central bank pledges 'ample' liquidity to sustain growth  More loans but fewer profits for top banks  New bank loans top 664b yuan in May  Economists: Inflation unlikely in '09

In the first five months, investment on newly started projects grew 95.9 percent to 5.33 trillion yuan, up 5.2 percentage points from the rate in the first four months, indicating that the strong investment momentum is likely to continue.

The government also slashed the capital requirement ratio for investment projects in May, which analysts said means more money will come from bank loans as the move lowers the threshold for seeking credit.

Meanwhile, the recent strong rebound in the country's property market has prompted more home buyers to seek bank mortgage loans to finance their payments.

"The proportion of residents' credit in the total new loans climbed 28.23 percent, maintaining the growth momentum since March as a result of the recovering demand for medium-term housing mortgage loans," said Wu.

With policymakers pledging to keep an accommodative monetary policy to underpin the economic growth, analysts said the strong loans growth would continue throughout this year with total new loans reaching around 8 trillion yuan for the whole year.

The nation's rapid credit creation has been effective in keeping the world's largest economy growing decently during a global recession, but it also raises concerns about worsening asset quality and thus leading to a new asset bubble.

Liu Mingkang, head of the China Banking Regulatory Commission, cautioned earlier this month at a banking forum that China needs to ask whether the positive signs in the economy are for real, with questions about the recovery in the real estate sector.

The chairman warned of a "negative sign" in the lending surge and indicated that people should pay attention to the quick rebound of the stock market.

The main index of China's A-share market has risen over 50 percent from the beginning of the year, partly driven by speculation that the ongoing loose monetary policy will later transform into inflation and blow asset bubbles.