Loan growth rebounds to Rmb664.5b, and target of Rmb8t will likely be exceeded
Analyst: Nan Sheng
Loan growth rebounds to Rmb664.5b
May loan growth picked up pace again as a total of Rmb664.5b of new loans were issued over the month, versus Rmb592b issued in April. The highly anticipated slowdown in loan growth again failed to materialize as banks continued to inject liquidity into the economy.
From the structure of new loan growth, medium- to long-term loans continued to be the primary driving force behind new corporate loans. A total of Rmb476.9b of loans was issued to non-financial corporations, among which, Rmb348.5b were medium- to long-term loans and only Rmb21.2b were short-term loans. Discounted bills continued to decline, with Rmb86.2b worth of bills were issued in May versus Rmb125.7b in April.
Retail loans totaled Rmb187.6b for the month versus Rmb147.2b issued in April. We believe strong mortgage loans were the primary driving force behind the continued strength in retail loan growth.
M1 growth outpaces M2 on a sequential basis on higher corporate demand deposits
M1 supply reached Rmb18.2t in May, up 18.7% yoy and M2 supply reached Rmb54.82t, up 25.74% yoy. However, M1 increased 2.1% over April while M2 increased 1.4% sequentially. The faster increase in M1 is largely reflective of higher increases in corporate demand deposits. This shows us that corporations are gaining more confidence in the economy and are preparing to partake in further investment projects.
Deposits increased by Rmb1.33t, staying above Rmb1t for the fifth consecutive month
Rmb deposits increased by Rmb1.33t during May, boosting total deposits outstanding to Rmb54.63t, up 26.67% yoy and 2.5% sequentially. Retail deposits increased by Rmb188.6b and deposits of non-financial firms increased by Rmb669.8b.
Full-year loan target of Rmb8t likely to be exceeded
A total of Rmb5.83t of loans has already been issued over 5M09, representing 73% of the full-year target of Rmb8t. Although we continue to believe the pace of loan growth will eventually slow, it is very likely that the full-year target of Rmb8t will be exceeded. We expect new loan growth to slow down to Rmb450b over the next few months before slowing further to a range around Rmb300b during 4Q09. On a policy front, we believe regulators will push for an increased focus on risk management during 4Q09 and my issue guidance to tighten liquidity. Although we do not expect a rise in interest rates or reserve ratios, we do think regulatory guidance will force loan growth to slow noticeably. Nevertheless, we believe a full-year target of Rmb8.3t is likely. The historical trend over the past three years averaged Rmb325b on a monthly basis.
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