China's Bank Lending Growth Slows and Shifts to Private and Personal Loans

As the peak period for the investment of big projects included in the government’s economic stimulation plan has passed, and banks are doubtful about the strength and sustainability of the economic rebound, new lending is estimated to decline further in May. But meanwhile, lending to small and medium enterprises and individuals is growing.
 
China Business News quoted a senior in a large state-owned bank, saying the new lending in May is estimated to be 400 billion to 500 billion yuan, lower than the 591.8 billion yuan of new lending in April.

 
Slowdown in new lending growth and lack of sustainability has been commonly admitted by insiders of the banking industry. Since the beginning of the second quarter, as government-led projects are declining, banks have lowered their expectation for total lending in 2009. According to statistics from four large state-owned banks, individual loans have already exceeded corporate loans, and the percentage of bill financing in total lending has dropped to 10%.
 
Lending by China’s big four state-owned banks usually account for 50% of the total. This situation continued in May. New lending by these banks totaled 171.7 billion yuan in the first 30 days of May, almost 50 billion yuan lower than the total lending in April. However, as lending usually grows much faster at the end of a month, the new lending on May 31 may be quite big.
 
Credit growth of four big banks is still slow or even negative in the first 20 days of May, and began to accelerate in the last 11 days. In the first 30 days of May, new lending by the Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, and China Construction Bank totaled 46.8 billion yuan, 26.4 billon yuan, 69.8 billion yuan, and 28.7 billion yuan respectively. However, new lending by these four banks in the week before May 30 totaled 26.3 billion yuan, 30.5 billion yuan, 41.6 billion yuan, and 15.2 billion yuan respectively, each accounting for 66% of their total lending in the first 30 days of May. This trend was also very apparent in April.
 
Decrease in new lending in May is mainly because the peak season for big projects is gone, and because of the reviewing system of the banks, which led to higher lending growth in the first several months of a year.
 
In order to support the government’s economic stimulus, banks actively increased their lending in the first several months of this year. However, as the peak season for big projects is gone, it is becoming increasingly difficult for banks to find projects suitable for loans.
 
Meanwhile, after four to five months of high credit growth, the banking industry is changing its attitude. The consensus was once that the total credit scale in 2009 might reach eight to nine trillion y uan, but now banks commonly believe the credit growth may not be so high or sustainable.
 
It takes at least two months for projects included in the 4 trillion yuan plan to be approved by the National Development and Reform Commission, so many plans are still under review now. Furthermore, loan demand from non-governmental sectors seems to be quite low, and has shown no sign of rebounding.
 
Changes in credit structure are also worth attention. Corporate loans of the four large banks totaled 60.3 billion yuan in the first 30 days of May, accounting for only 35% of the total lending, while individual loans reached 94.3 billion yuan, accounting for 55%.
 
"In April and May, regulatory departments raised new requirements. With the decrease in big projects, banks began to pay more attention to small and medium enterprises, and individual loans were also growing fast," said the senior official of a big bank mentioned above. He said this might have something to do with the rebound in the real estate and capital markets.
 
The biggest change in credit structure is the percentage of bill financing. The proportion of bill financing once exceeded 40% at the beginning of the year. However, in the first 30 days of May bill financing grew only 17.1 billion yuan, accounting for about 10% of the total new lending, and bill financing in two banks even saw a negative growth.
 
Wang Yongli, vice governor of Bank of China, said bill financing might see zero growth in May. This is mainly a result of reinforced regulation and supervision, causing fake bill financing to decrease.
 
However, there is still large room for trust loans, because they are not restrained by the benchmark interest rate. Great demand exists for trust loans, and to adjust their income structure, banks will allocate more trust loans to get more commission charge. However, interest rates of trust loans are much lower than the benchmark interest rate, showing the pressure of the market-driven interest rate.
 

 

Tags: bank lending   stimulus plan