China's credit growth eases in April

China’s credit growth took a breather in April after a strong March, as both headline new yuan loans and aggregate financing fell below expectations, central bank data showed on Thursday.

April headline new bank loans were 1.02 trillion yuan (US$150 billion), 161.5 billion yuan less than the same period last year. And the increase also eased compared with a recent high of 1.69 trillion yuan in March, according to data from the People’s Bank of China.

The main issue was softer corporate borrowing, said UBS China’s research team. Data showed new yuan-denominated loans to the corporate sector was only 347.1 billion yuan, dragged by both a decline in short-term loans and weaker medium- and long-term loans.

Bank lending to non-banking financial institutions, however, increased about 142 billion yuan.

New household loans stayed steady at 526 billion yuan last month, with over three quarters of the growth from demand for medium- and long-term loans (mainly mortgages), as China’s property sales stabilized in recent months.

The slower pace of credit expansion also weighed on the growth of total social financing in the month. In April, aggregate financing slumped to a weaker-than-expected 1.36 trillion yuan from 2.86 trillion yuan in March.

Part of the slowdown is “seasonable”, said Julia Wang, economist at HSBC China, as April is traditionally a weaker month for lending. And there has been some tightening of liquidity in the interbank market over the month.

HSBC predicted that broad credit growth will likely continue to recover at a modest pace in the coming months and borrowing costs for corporations will likely continue to ease.

Despite some fears of tightening, the banking giant believes that the PBOC’s policy stance has not shifted and policymakers will stay the course on stimulus in order to support the private sector recovery, given the renewed uncertainty in the China-US trade talks,  echoing similar comments by UBS Securities and Nomura’s global markets research team.

The sudden escalation of US-China trade relations and the recent sharp drop in stock prices could convince Beijing to take further easing measures to bolster confidence and stabilize growth, Nomura said.