April loan growth in China echoes deleveraging: ANZ

SINGAPORE - The People’s Bank of China (PBoC) released its April monetary data today, with new yuan loans and total social financing coming in substantially below market expectations. New yuan loans moderated to RMB555.6 billion in April, compared with RMB1.37 trillion in March. Total social financing dropped sharply to RMB751 billion from RMB2.34 trillion.

ANZ Bank says that, given the surge of loans in Q1, authorities have likely tightened credit extensions to unprofitable sectors and property-related credit expansion. “High property prices have triggered some tightening of mortgage extension in several cities. After the strong credit expansion in Q1, banks may also be asked to tighten their credit, reflected in April’s loan data.”
ANZ says that, in addition, bankers’ acceptance declined by a sizeable RMB278 billion, indicating a rapid shrinking of shadow banking activity. “This channel could have been an avenue to channel funds to speculative financial products. Given the complexity of the products offered, the shadow banking sector has also accumulated some incalculable risks.”
Corporate bond net financing rose by RMB210 billion, lower than the very strong figure in March of RMB646 bilion, and consistent with the heightening of credit risks.
ANZ says: “The ‘implicit guarantee’ for SOE bonds has been broken recently amid increasing defaults. We believe that such credit events will be more frequent.

“China will start to develop term structures that reflect a spectrum of credit risk premiums. Going forward, credit spreads should continue to widen. The sovereign bond market will become a cornerstone in China's structural reform over the short to medium term, at least on the funding side.
“In summary, the regulator has clearly started to tighten bank credit in view of potential property bubbles and speculative demand in commodities. We believe April's figures will set the tone for Q2.
“The PBoC will just ensure an adequate level of liquidity in the money market. Deleveraging will dominate the policy tone. The policy outlook will be targetted easing instead of broad-based. We expect only one RRR cut in the rest of 2016.” www.live.anz.com (ATI).