China's January New Loans under Estimates

BEIJING, Feb 13 (Xinhuanet) – China's new yuan-denominated lending hit 738.1 billion yuan (117.28 billion U.S. dollars) in January, witnessing a year-on-year decline of 288.2 billion yuan and falling far short of market expectations.

The figure, which was released by the People's Bank of China (PBOC) on Friday, was below the 1-trillion-yuan growth predicted by many economists but higher than 640.5 billion yuan in December last year.

Chinese banks typically grant more loans in January than any other month in order to maximize interest income over the year. But last month was the first since 2008 that new loans didn't exceed one trillion yuan.

Commercial banks were ordered by the PBOC to control the pace in granting loans, thus leading to the slower credit growth in January, said E Yongjian, a financial researcher from Bank of Communications, one of China's leading lenders.

Earlier last month, the PBOC said at a work conference that it will maintain a prudent monetary policy, adjust credit supply and keep social financing at a reasonable growth rate.

Meanwhile, the seven-day holiday of the Spring Festival might distort the data in terms of cutting the number of working days in January when banks could extend loans.

Chinese soaring demand for cash during the holiday caused individuals to withdraw funds from the banks in January, which limited the size of loans lenders could make under the current loan-to-deposit requirement, E said.

Whatever the effects of the timing of the holiday, the shortfall still arouses concerns, fueling the argument for the PBOC to follow up the Dec. 5 reserve requirement cut with another move to unfreeze commercial bank deposits.

Analysts expect more easing to come, but not quite soon, nor in a massive manner.

Citigroup economist Shuang Ding said "there has been a serious drop in demand for loans," but added that the central bank may wait until the end of February before it takes more concrete measures to boost lending.

E Yongjian noted that the January credit data signaled the central bank would only ease new lending in an appropriate and directional way. "A massive credit loosening now looks unlikely," he said.

Some analysts expect further reserve requirement cut to come in March, once the government has evaluated January-February data and made allowances for the distortions created by the Chinese New Year holiday.

Experts said that the surprising spike in consumer inflation in January explains why a second reserve requirement cut hasn't been announced yet.

Inflation in China accelerated unexpectedly in January due to higher food prices during the Chinese New Year holiday. The consumer price index rose 4.5 percent from a year earlier, up from a 4.1 percent rise in December and above economists' forecast of a 4.1 percent gain.

The pick-up in inflation breaks a five-month trend of moderating price increases, raising concerns that China may not be able to loosen policy aggressively to support growth.