China banks extend record 12.65 trillion yuan in new loans in 2016

A 100 Yuan note is seen in this illustration picture in Beijing
A 100 Yuan note is seen in this illustration picture in Beijing March 7, 2011. REUTERS/David Gray/File Photo

January 12, 2017

BEIJING (Reuters) – Chinese banks extended a record 12.56 trillion yuan ($1.82 trillion) of loans in 2016 as the government encouraged more credit-fueled stimulus to meet its economic growth target, despite worries about the risks from an explosive jump in debt.

China’s top leaders pledged after a key meeting last month to stem the growth of asset bubbles in 2017 and place greater importance on the prevention of financial risk, while keeping a “prudent and neutral” monetary policy.

But in December alone, Chinese banks extended 1.04 trillion yuan in net new yuan loans, far more than expected and lifting the yearly total well above the previous all-time high set in 2015.

Analysts polled by Reuters had expected December new lending would fall to 700 billion yuan from November’s 794.6 billion yuan.

New bank loans last year surpassed the levels of China’s massive credit-led stimulus during the global financial crisis in 2009, according to Reuters calculations based on central bank data. The total was some 8 percent above the previous all-time high of 11.72 trillion yuan in 2015.

Lending continued to be driven heavily by robust mortgage growth despite a slew of measures rolled out by local governments late in 2016 to cool sizzling housing prices and contain property bubbles.

Household loans accounted for 50 percent of total new yuan loans in 2016, while corporate loans accounted for 48 percent.

Medium-to-long-term loans accounted for 78 percent of total new loans, while short-term loans accounted for 11 percent.

Broad M2 money supply (M2) grew 11.3 percent from a year earlier, central bank data showed on Thursday, missing forecasts.

Outstanding yuan loans ticked up by 13.5 percent by month-end on an annual basis.

Outstanding loans had been expected to rise 13.1 percent while money supply was seen up 11.5 percent.

China’s total social financing (TSF), a broad measures of credit and liquidity of the economy, slid to 1.63 trillion yuan in December from 1.74 trillion yuan in November.

But for the full year, TSF also hit a record of 17.8 trillion yuan.

TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offerings, loans from trust companies and bond sales.

The surge in aggregate financing suggested that off-balance sheet financing and possibly shadow banking activity continued to pick up in December, despite Beijing’s effort to contain risks.

China’s economy expanded by a steady 6.7 percent in the third quarter and looks almost certain to hit the official full-year 2016 target of 6.5-7 percent, fueled by ample credit, higher government spending and a red-hot property market.

But corporate debt burdens continue to grow, increasing risks to the economy and the financial system as policymakers look to push structural reforms and encourage deleveraging.

China’s overall debt has jumped to more than 250 percent of GDP from 150 percent at the end of 2006, the kind of surge that in other countries has resulted in a financial bust or sharp economic slowdown, analysts say.

The chief of China’s state planning agency vowed on Tuesday to contain high company leverage ratios, saying it will not allow debt of non-financial firms to rise beyond current levels and will step up efforts to encourage companies to restructure their debts.

China’s corporate debt has soared to 169 percent of GDP.

China is set to release fourth-quarter and full-year GDP data on Jan. 20.

(Reporting by the Beijing Monitoring Desk, Sue-Lin Wong, Kevin Yao and Elias Glenn; Editing by Kim Coghill)