China’s New Loans Fell Sharply To RMB598 Billion In December

China’s new RMB loans declined sharply to RMB597.8 billion in December 2015, down from RMB708.9 billion in November, below market expectations of RMB700 billion.

The lower-than-expected new loans suggest that credit demand remained weak, and commercial banks were still reluctant to lend due to rising credit risks, says a research report by ANZ.

Aggregate financing surged to RMB1.82 trillion in December, much higher than RMB1.018 trillion in November and market consensus of RMB1.15 trillion, suggesting that off-balance sheet financing picked up again in December.

Entrusted loans increased RMB351.9 billion, while banker’s acceptance draft and trust loans also rose RMB151.5 billion and RMB37 billion, respectively.

Notably, net corporate bond financing and non-financial enterprise equity financing rose by RMB470.1 billion and RMB153.2 billion, reflecting an increase in financing through the capital market.

While off-balance sheet financing surged in December, for 2015 as a whole, the share of new RMB loans in aggregate financing rose to 73.1% in 2015, compared with 59.4% in 2014, reflecting the deleveraging process.

Total outstanding banker’s acceptance draft declined RMB1.06 trillion in 2015, compared with a RMB128.5 billion drop in 2014. Entrusted loans increased RMB1.59 trillion in 2015, compared with RMB2.5 trillion in the previous year. Trust loans grew by a mere RMB43.4 billion, from RMB517 billion in 2014.

China’s M2 rose by 13.3% in December, from 13.7% in November, above the official target of 12% for 2015.

The policy focus in the near term should be lowering the cost of funding in the economy, says the ANZ report.

The bank expects a commercial bank reserve requirement ratio cut of 50 basis points as early as this month.

Afterward, the People’s Bank of China may lower its interest rate on Standing Lending Facility (SLF) to guide the market interest rates lower, forecasts ANZ.

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