New yuan-denominated loans dip in April

Client managers from Bank of Taizhou visit a clothing vendor to ask about his loan needs in Taizhou, Zhejiang province. New yuan loans amounted to 774.7 billion yuan ($124.95 billion) in April, down from March's 1.05 trillion yuan. HAN CHUANHAO/XINHUA

Policymakers seen tolerating slower credit growth even as economy slows

New lending by domestic banks contracted in April, the central bank said on Monday, as the government tolerated weaker credit expansion despite the potential impact on economic growth.

New yuan-denominated loans reached 774.7 billion yuan ($124.95 billion) last month, down 17.6 billion yuan year-on-year, the People's Bank of China said in a statement. The figure was also a dramatic decrease from 1.05 trillion yuan in March.

Total social financing fell to 1.55 trillion yuan in April from 2.07 trillion yuan the month before, according to central bank statistics.

Total social financing is the broadest measure of credit. It covers numerous funding types and sources, such as loans in renminbi and foreign currency, trust loans, the equity market, off-balance-sheet items, corporate bonds, insurance, micro-lending and industry funds.

It doesn't include the shadow banking system.

"In the face of calls for stimulus, China's government appears comfortable with a continued slowdown in credit growth," Mark Williams, chief Asia economist for Capital Economics Ltd, said in a research note.

The figures defied market expectations for further monetary easing to boost the slowing economy, after the PBOC in late April lowered the reserve requirement for some rural banks.

In its quarterly monetary policy report released last week, the PBOC said that it would maintain a "prudent" monetary policy and "fine-tune" it when appropriate to provide a stable environment for the domestic economy.

Over the weekend at a forum in Beijing, PBOC Governor Zhou Xiaochuan reiterated that the central bank would fine-tune policy settings as needed, but he ruled out the possibility of any massive stimulus, media reported.

"The government's composure so far is an encouraging sign that policymakers are still giving priority to bringing credit risks under control," said Williams.

Financial markets were unsettled by several debt default cases earlier this year, which triggered tighter regulations and credit.

First-quarter industrial output was weaker than financial experts had expected, and there were calls for monetary easing via a lower reserve ratio.

"As broad money supply growth in April was in line with the government's full-year target of 13 percent, pressure for the central bank to lower the reserve requirement will decrease accordingly, which means China will pursue a steady monetary policy," said Wen Bin, director of macroeconomic research at the Institute of International Finance under Bank of China Co Ltd.

Broad money supply, or M2, reached 116.88 trillion yuan at the end of April, up 13.2 percent from a year earlier and well above the consensus forecast for growth of 12.5 percent.

But Wen still said the PBOC should lower the reserve ratio to increase bank lending to small and medium-sized enterprises.

"Some of the banks' risk provisions should be used for special loans to SMEs. In this way, monetary policy will better support China's structural readjustment and the development of the real economy," Wen said.

He said that the government should give SMEs more ways to raise capital, such as by issuing bonds, at times when banks become more cautious toward lending.