China urges banks to boost lending after slow start to 2022

BEIJING (BLOOMBERG) - China is quietly urging banks to increase lending after a slow start to the year, ramping up efforts to combat the weakest economic expansion since early 2020.

The People's Bank of China (PBOC) gave so-called window guidance to large state-owned lenders and regional banks in mid-January, encouraging them to extend more credit to companies and households, people familiar with the matter said, asking not to be identified discussing private information.

Bank lending in the first two weeks of the year was lower than in the same period in 2021, one of the people said. The PBOC guidance underscores a growing sense of urgency in Chinese President Xi Jinping's government to stabilise the world's second-largest economy before a crucial leadership transition later this year.

China's slowdown - fuelled by a slumping property market, lacklustre investment and weak spending by Covid-19-weary consumers - has already prompted the central bank to cut interest rates and pledge further action to support demand.

China's shift towards monetary stimulus has become a major focus for global investors as the country diverges from other big economies like the United States, where the Federal Reserve is laying the groundwork for higher interest rates. Shares of Chinese banks and real estate companies have soared in recent days, while government bond yields have dropped, as markets positioned for further PBOC easing.

One risk for Chinese policymakers is that demand for loans will remain weak despite government prodding. Local companies reduced investment and remained reluctant to borrow in the fourth quarter, with small businesses' financing costs soaring despite favourable policies, China Beige Book International said in a report released in December.

While China's annual new yuan loans rose to a record 19.95 trillion yuan (S$4.2 trillion) last year (2021), there has been a drop off in long-term corporate lending in recent months. The PBOC did not immediately respond to a request for comment on Friday (Jan 21).

The central bank will roll out more policies and make pre-emptive moves to stabilise economic growth, PBOC deputy governor Liu Guoqiang said at a briefing on Wednesday.

Regulators last month called on banks to boost real estate lending in the first quarter after at least two quarters of consecutive declines, according to people familiar with the matter. The authorities also eased a key debt restriction for developers, a sign they have become increasingly alarmed about the industry's liquidity crisis.

Chinese property bonds soared earlier this week amid reports that the government will ease curbs on developers' access to funds from pre-sold homes. Mortgage lending remains another focus. Growth in mid- and long-term loans to households, a proxy for mortgages, slowed in December to the weakest pace since February 2020, when China faced widespread lockdowns to control the initial Covid-19 outbreak.

Banks in some major cities have recently accelerated mortgage approvals, the China Securities Journal said in a front-page report on Friday. It now takes some lenders only about a month to approve applications, much faster than before, according to the newspaper.

Chinese banks had more than 51.4 trillion yuan of outstanding loans to the real estate sector as of September. The exposure was more than any other industry, and accounted for about 27 per cent of the nation's total lending, according to official data.

Banks in China tend to front-load their loans early in the year to record interest income earlier. Lending in January last year, for example, accounted for about 18 per cent of total new credit for the year, according to official data.