Big 4 Chinese banks have lent RMB25 billion in the first half of June21 June, 2012, 14:18. Posted by Zarathustra
Since late last month, we have seen more obvious signs that the Chinese government has started to reflate the economy both from the languages officials are using and to what the government is doing. We are now probably seeing more signs of that.
Last month around this time, we noted that the big 4 banks had almost lent nothing in the first half of May. The May new loans number beats estimate only on the rush to lend in the last weak. This month, we are getting somewhat better, only because it was practically zero in May. Big 4 banks have lent about RMB25 billion according to China Securities Journal, which is a very weak number, highlighting the weak demand for credit, consistent with the idea that the corporate sector is deleveraging. On the other side of banks’ balance sheets, deposits are falling again. Deposits in the big four banks fell by RMB272 billion in the first week of June. However, the report quoted sources from banks that because lending will speed up towards the month-end and quarter-end, new loans for June could get to RMB 900 billion to RMB1 trillion.
If you think that RMB1 trillion of new loans sounds a bit stretched given that the big 4 banks have only lent RMB25 billion, it is. Big 4 banks accounted for roughly 40% of total loans outstanding in the banking system. If big 4 banks have lent RMB25 billion, the whole of banking system could have lent roughly RMB62.5 billion in the first half. At this rate, total loans for the whole month could only get to some RMB125 billion. If these banks are really able to lent RMB1 trillion or so in June, these banks will surely be lending money like crazy towards the end of the month. Of course, it is possible that it happens based on the pattern of banks lending in China. Despite weak demand for credit from private sector, banks are being forced to lend.
Whether that will be enough to avoid a full-blown debt deflation is yet to be seen (we think a colossal sum of money will be required anyway, and we are still far from there).