UPDATE 3-China January bank loans surge to record, credit growth slows

* Jan new loans 3.58 trln yuan vs forecast 3.5 trln yuan

* Jan M2 money supply +9.4% y/y, vs forecast of +10%

* Jan TSF 5.17 trln yuan, vs forecast 4.45 trln yuan (Adds analyst comment, bad loan figures)

BEIJING, Feb 9 (Reuters) – China’s new bank loans leapt to new highs in January boosted by seasonal demand, while broad credit growth slowed, as the central bank walks a tightrope between supporting a recovering economy and rising debt risks.

Banks extended 3.58 trillion yuan ($555.31 billion) in new loans in January, hitting the highest on record and topping the 3.34 trillion yuan seen in January 2020, data from the People’s Bank of China (PBOC) showed on Tuesday.

Chinese lenders tend to front-load loans at the beginning of the year to get higher-quality customers and win market share.

Analysts polled by Reuters had predicted new yuan loans would jump to 3.5 trillion yuan in January, up from 1.26 trillion yuan the previous month.

Capital Economics said it would make more sense to focus on outstanding lending growth to gauge the underlying trend, as January’s new lending figures are usually the highest of the year.

“Credit growth in China dropped back further last month due to a broad-based slowdown in both bank and non-bank lending,” it said in a research note.

“Credit is likely to continue decelerating as the PBOC focuses on reining in financial risks. This will become a growing headwind to the economy in the second half of the year.”

Outstanding yuan loans grew 12.7% from a year earlier compared with 12.8% growth in December. Analysts had expected 12.7% growth.

The PBOC has rolled out a raft of measures since early-2020 to support the pandemic-hit economy, but it has shifted to a steadier stance in recent months.

Demand for cash is usually strong ahead of the week-long Lunar New Year holidays, but market rates have pulled back from multi-year highs hit earlier this month as liquidity strains in the interbank market started to ease.

China will avoid a sudden shift of monetary policy, the central bank said on Monday, adding that it will balance economic recovery with preventing risks.

The central bank will scale back support for the economy in 2021 and cool credit growth, but fears of derailing the recovery and debt defaults are likely to prevent it from tightening anytime soon, policy sources have said.

January also saw some commercial banks in bigger cities sharply slow the issuance of property loans and mortgages amid tight credit quotas, following stringent loan caps instituted by the central bank to contain the flow of funds into the real estate sector.

Household loans, mostly mortgages, jumped to 1.27 trillion yuan in January from 563.5 billion yuan in December, while corporate loans soared to 2.55 trillion yuan from 595.3 billion yuan, according to Reuters calculations based on central bank data.

Broad M2 money supply in January grew 9.4%, below estimates of 10% in the Reuters poll and 10.1% in December.

Annual growth of outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, slowed to a six-month low of 13% in January from 13.3% in December.

UBS said in a report it expected annual TSF growth to slow further to 10.8% at end-2021.

In January, TSF jumped to 5.17 trillion yuan from 1.72 trillion yuan in December.

Central bank governor Yi Gang has said China’s monetary policy will continue to support economic growth and the central bank will watch debt and non-performing loan risks.

China’s total debt hit about 280% of GDP at the end of 2020, spiking 20 percentage points from a year earlier – but would likely stabilise in 2021, Yi said.

Commercial banks’ non-performing loans (NPL) totalled 2.70 trillion yuan at end-2020, with the NPL ratio at 1.84%, the banking and insurance regulator said on Tuesday. (Editing by Jacqueline Wong)