China banks provide over $189bn loans in March

The People’s Bank of China in Beijing. The Chinese central bank said yesterday that total social financing, a broader measure of overall liquidity in the economy, was 1.18tn yuan in March versus 1.35tn yuan in February.Reuters/BeijingChinese banks made 1.18tn yuan ($189.87bn) worth of new loans in March, beating expectations, as the authorities ramped up efforts to avert a slowdown in economic growth while lenders cut their exposure to the risky shadow financing. Economists polled by Reuters had expected new local-currency loans at 1.03tn yuan in March, compared with 1.02tn yuan in February. In spite of the expanded loans, growth in broad money supply slowed, which could put the central bank under more pressure to support the economy. Broad M2 money supply (M2) in March rose 11.6% from a year ago, missing market expectations of 12.3% and slowing from February’s 12.5% pace. Outstanding loan growth was 14% in March. Analysts polled by Reuters had expected outstanding loans to grow by 14.5%, versus the previous month’s 14.3%. The People’s Bank of China (PBoC) said that total social financing (TSF), a broader measure of overall liquidity in the economy, was 1.18tn yuan in March, versus 1.35tn yuan in February. New bank loans totalled 3.61tn yuan in the first quarter, versus 3tn yuan in the same period last year, while TSF totalled 4.61tn yuan in the first three months, versus 5.6tn yuan a year earlier.  New loans in the first quarter made up for 78.3% of TSF, a rise of 24.1 percentage points from a year earlier. “It seems like there’s a refinancing under way from shadow banks to banks,” said Tim Condon of ING. “We get a large increase in loans but it doesn’t translate into economic activity. It’s just rolling over intermediary credit into the banking system. It’s a healthy thing. We want to clean up shadow banks,” he said. Condon said the M2 growth data “is consistent with data that we are seeing across the economy, and that is that the all the activity indicators are slowing.” The central bank said after the data release that it will use a variety of policy tools to keep liquidity conditions appropriate and maintain “reasonable” growth in credit and social financing, and the borrowing costs for companies have declined.  The loan data came out one day after the government announced poor exports for March and one day before China announces its economic growth for 2015’s first quarter. Economists expect GDP growth slowed to a six-year low of 7%. The central bank has cut interest rates twice since November, on top a cut in the amount of cash that bank hold as reserves in February, in a bid to keep liquidity conditions accommodative. It has also guided short-term money rates downward sharply in the interbank market, which finally began yielding results in April, with the benchmark seven-day bond repurchase agreement falling below 3% for the first time since Oct 2014. The economy still faces persistent downward pressures due to a property market downturn, widespread factory overcapacity and elevated local debt levels, as global demand remains erratic. China’s foreign currency reserves – the world’s largest – fell by $110bn in the first quarter to $3.73tn, following a drop of about $50bn in the previous quarter, amid signs of capital outflows.  Mark Williams, an economist at Capital Economics, estimated that the dollar’s strength during the course of the first quarter may have shaved $130bn off the dollar value of China’s reserves, by reducing the value in dollars of reserves held in euro and yen.