New loans plunge, but policy still to be accommodative

Banks lending in China took a surprising plunge in July to the lowest in nearly five years after an exceptionally strong growth in June, adding to concerns over economic momentum, central bank data showed on Wednesday.

Banks in China extended 385.2 billion yuan (US$61 billion) in new yuan loans in July, 314.5 billion yuan less than last year and was only a third of those in June, the People's Bank of China said in a statement today.

The credit expanded the least since December 2009, and missed economists' already scaled down expectations of 727.5 billion yuan after the June surge.

Total social financing, the broadest measure of credit supply, including loans, bank acceptance bills, corporate bonds and equity financing, was 273.1 billion yuan, one seventh of that in June and a third of that in July last year.

The broader figure was less than new yuan loans due to net payback of discounted bankers' acceptance bills, foreign currency loans and trust loans, according to the central bank.

The monetary authority issued an unusual explanation for the July data assuring the market that a slowdown in financing was reasonable following the June surge, and the central bank is still taking an accommodating stance to ensure stable credit supply.

The outlook is positive as banks are lending between 30 billion to 50 billion per day in the first part of August, the central bank said, at which pace the August lending could again top 1 trillion yuan.

But the monetary authority conceded that demands have been weaker amid economic downturn and property market cooling down, and banks need time to find high quality projects after closing deals with many in June.

Wang Tao, an economist at UBS, said the surprisingly low financing data missed expectations for further monetary support, but it is no signal for tightening policies.

"We caution over reacting to July's surprisingly weak credit data," Wang said. "We do not see these as evidence of credit tightening and expect August credit numbers to improve."