Approval of infrastructure projects, urbanization to spur credit demand

New lending in January is likely to exceed 1 trillion yuan ($159 billion), as credit demand backed by investment projects surges and banks' willingness to lend at the start of the year increases.

"At the end of 2012, the authorities imposed tighter controls on credit growth, restraining banks' desire to make loans," said Chen Wei, an analyst at China Minzu Securities Co Ltd.

"As a result, there is a greater likelihood that lenders will extend as many loans as possible in January to redress this situation."

Chen forecast that new yuan loans in the first quarter would reach 2.7 trillion yuan, and lending is expected to reach 1 trillion yuan in January.

"Economic recovery, ministries' accelerated approval of infrastructure construction projects and the government's ambition to promote urbanization will spur credit demand."

He added that a rebound in banks' yuan holdings to purchase foreign exchange as exports rebound, and the central bank's reverse repo operations, will help stabilize capital in the inter-bank market and spur lending.

The forecast came ahead of a slew of economic data due on Friday.

The Beijing-based China Securities Journal reported on Thursday that in the first two weeks of January, the "Big Four" banks - Industrial and Commercial Bank of China Ltd, China Construction Bank Corp, Agricultural Bank of China Ltd, and Bank of China Ltd, lent 270 billion yuan, surpassing the total amout of loans they extended in December.

Compared with the same period last year, loans from the "Big Four" State-owned lenders increased by nearly 100 percent, it said.

January usually sees the most vibrant lending activity of the year, when around 20 percent of the whole year's credit quota is lent out, said analysts. Between 2009 and 2011, new lending in January was always above 1 trillion yuan.

"If new yuan loans in January exceed 1 trillion yuan, the regulators will probably take measures to tighten the credit supply to moderate rising inflation," China Securities Journal quoted an anonymous source from ICBC as saying.

New loans extended in December, totaling 454.3 billion yuan, fell short of market expectations of 550 billion and the November reading of 523 billion yuan, mainly due to a decline in medium- to long-term loans.

"This suggests a slower pace of bank financing for major construction projects toward the end of the year. Non-bank financing channels are likely playing a bigger role in long-term infrastructure projects. We believe bank credit is becoming less important as a social financing indicator as other major sources of financing quickly gain ground," said Stephen Green, chief China economist at Standard Chartered Bank.

E Yongjian, a senior analyst at Bank of Communications, said that as new lending in December was less than expected, many construction projects would be postponed until January.

"Banks are usually more willing to make loans at the start of the year, so we expect medium- to long-term loans and total lending in this month to increase substantially."

Credit demand will grow steadily throughout the year as economic growth recovers, E said. "However, we don't think the credit environment will be significantly loosened, as the government is trying to curb investment fever and housing prices."

China's central bank said last week that it will continue its "prudent" monetary stance in 2013. Media reports said it had set a new yuan lending target throughout the year at 8.5 trillion yuan, while M2 - a broad measure of money supply that covers cash in circulation and all deposits - is targeted to grow by 13 percent year-on-year.

wangxiaotian@chinadaily.com.cn

(China Daily 01/18/2013 page13)