China’s new bank lending recovered in May after declining in the previous month, but the increase fell short of market expectations as the ongoing property market slowdown continued to affect household borrowing and overall credit demand. 
According to calculations based on data released by the People’s Bank of China (PBOC), new yuan loans reached CNY 520 billion (USD 77 billion) in May. The figure marked a rebound from the CNY 10 billion contraction recorded in April but remained below analysts’ expectations of CNY 550 billion. Lending was also lower than the CNY 620 billion reported during the same month last year. 
The central bank does not publish monthly loan figures separately. The May estimate was derived from the January-May lending data released recently and compared with the January-April figures. 
Data showed that banks issued CNY 9.11 trillion in new loans during the first five months of the year, compared with CNY 10.68 trillion during the corresponding period last year. The decline highlights continued weakness in borrowing demand, driven by a softer business environment, cautious consumer spending and a prolonged downturn in the housing sector. 
Household loans, including mortgages, contracted by CNY 141.2 billion in May. Although this represented an improvement from the sharp CNY 786.9 billion contraction recorded in April, borrowing by households remained weak. In contrast, corporate lending increased significantly to CNY 640 billion from CNY 390 billion a month earlier. 
The latest figures come as China’s housing market continues to struggle. New home sales have shown increasingly varied performance across cities, with stronger markets outperforming weaker regions. Analysts at ANZ Research recently noted that households continue to reduce debt levels, a trend that could increase reliance on fiscal measures to support economic stability. 
Outstanding yuan loans stood at CNY 281.02 trillion at the end of May, representing annual growth of 5.5%, slightly slower than the 5.6% growth recorded in April but broadly in line with market expectations. 
Recent reports indicated that the PBOC had informally encouraged some major state-owned banks to increase lending activity during May after issuing similar guidance in April. The move followed China’s first monthly contraction in new loans this year, which analysts largely attributed to weak household credit demand. 
Despite seasonal spending typically associated with the Labour Day holiday period, ANZ Research observed that underlying consumption remained soft. The firm pointed to a sharp 20% decline in automobile sales during May as evidence that consumer demand continues to face challenges. 
Analysts at Capital Economics said the weak lending data demonstrated that demand, rather than the supply of credit, remains the primary obstacle to stronger loan growth. The consultancy noted that this occurred despite reports that banks were encouraged to expand lending activity. 
The firm also linked the slowdown in credit growth to weaker mortgage demand amid the property market crisis and a decline in short-term household borrowing. It added that reduced funding support for the government’s consumer goods trade-in programme may have contributed to the trend. 
In commentary published recently, Financial News, a publication affiliated with the PBOC, stated that slower loan growth should not be interpreted as weaker financial support for the economy. The publication argued that China already has a very large loan base and a broader range of financing channels than in previous years. 
The commentary further noted that new loan volumes do not necessarily reflect the level of support provided to the real economy. It suggested that policymakers are increasingly focused on improving capital allocation efficiency as economic activity shifts away from credit-intensive sectors such as real estate and toward technology and service industries, which generally require less borrowing. 
The lending figures were released against the backdrop of slowing economic momentum. China’s industrial output growth moderated in April, while retail sales weakened to their lowest levels in more than three years. The economy has also faced pressure from higher energy costs linked to the Iran conflict and continued weakness in domestic demand. 
Meanwhile, broader monetary indicators showed mixed trends. M2 money supply grew 8.6% year-on-year in May, slightly above analysts’ forecasts and unchanged from April. The narrower M1 measure rose 5.5%, improving from 5% in the previous month. 
Outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, increased 7.7% year-on-year in May, marginally slower than the 7.8% growth recorded in April. Analysts noted that faster government bond issuance could help support financing activity in the coming months. 
Source Reuters