China bank lending slows as PBOC walks policy tightrope

Wed Jan 15, 2014 2:19am EST
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By Aileen Wang and Kevin Yao

BEIJING (Reuters) - China's new bank lending slowed more than expected in December and broad money supply growth also eased, highlighting the policy tightrope the central bank must walk as it tries to contain risky debt levels without braking the economy too hard.

There is little sign of a sharp tightening in monetary policy, but rising money market rates and bond yields in recent months indicate the People's Bank of China is committed to removing excessive debt from the economy to head off potential financial risks.

But analysts also believe the central bank still needs to support economic growth, and Chinese leaders have pledged to keep growth steady in 2014 while driving long-term reform to put the economy on to a more sustainable footing.

"With inflationary pressures remaining modest, we expect the PBOC to keep the current monetary policy in place," said Sun Junwei, China economist at HSBC in Beijing, in a research note.

"Even so, we think the PBOC will still strike a balance between mitigating financial risks on the one hand, and stabilizing growth on the other."

Chinese banks made 482.5 billion yuan ($79.9 billion) worth of new yuan loans in December, lower than a forecast of 600 billion yuan and considerably less than the previous month's 624.6 billion yuan, central bank data showed on Wednesday.

But analysts believe the slowdown in bank lending also reflected seasonal factors, namely the need for lenders to hold more cash to meet year-end regulatory requirements.

Indeed, the Shanghai Securities News reported on Wednesday that the top four state banks stepped up the pace of new lending in January, handing over 320 billion yuan in the first 12 days of the month, versus 270 billion yuan over the same period a year earlier. The newspaper also cited sources saying new loans could top 1 billion yuan in January.   Continued...

A woman walks out of the headquarters of the People's Bank of China (PBOC), the central bank, in Beijing November 20, 2013. REUTERS/Jason Lee