BEIJING • Chinese banks armed with fresh lending quotas extended a record 2.51 trillion yuan (S$540 billion) of new loans in January, far more than markets had expected, suggesting Beijing is keeping monetary policy loose to counter a protracted economic slowdown.
New loans extended by banks beat market expectations of 1.9 trillion yuan, according to a median forecast compiled by Bloomberg News, and far exceeded the 597.8 billion yuan in December.
But analysts cautioned that seasonal factors might have played a role, as lending typically jumps at the beginning of the year when the state-dominated banking sector receives new quotas for loans.
"China's new yuan loans surged to a record high," ANZ Banking Group said in a research note. "New yuan loans exhibit a strong seasonality and usually peak in January."
Companies might also be switching into yuan currency debt given declining interest rates, it added.
China's economy grew 6.9 per cent last year, the slowest rate in a quarter-century, which prompted the central bank to cut interest rates six times since late 2014 and to reduce the amount of funds banks must set aside as reserves.
Separately, total social financing - an alternative measure of credit in the real economy - reached 3.42 trillion yuan in January, the central People's Bank of China (PBoC) said in a statement on its website.
The figure was nearly double the 1.82 trillion yuan in December and also exceeded Bloomberg's median estimate of 2.2 trillion yuan.
Analysts expect further monetary loosening.
"The increase is partly seasonal - lending always jumps at the start of the year when banks are issued fresh loan quotas," Mr Julian Evans-Pritchard, China economist at Capital Economics, said in a research note.
"Looking ahead, we expect credit growth to remain strong given that the PBoC has kept monetary conditions loose."
Soured loans at Chinese commercial banks rose to the highest level since June 2006 as the nation's economic expansion slowed to the weakest pace in 25 years.
Non-performing loans rose 7 per cent from September to 1.27 trillion yuan by December, the slowest quarterly increase in two years, data from the China Banking Regulatory Commission showed on Monday.
Including "special-mention" loans - those on which future repayment is at risk but are yet to become non-performing - the industry's total troubled loans swelled to 4.2 trillion yuan, or 5.46 per cent of total advances.
Concern over borrowers' ability to service debt has weighed on Chinese lenders, with shares of the nation's four largest banks trading at valuations at least 35 per cent below a gauge of their emerging- nation peers.
"The slower quarterly increase in NPLs is likely to be results of stepped-up efforts by banks to recollect loans, more aggressive write- offs and some relaxation in their bad-loan recognition standards," said Mr Chen Shujin, a Hong Kong-based analyst at DBS Vickers Hong Kong.
"We don't expect to see any turnaround of asset quality until the end of this year."