By Judy Hua and Kevin Yao

BEIJING (Reuters) – China’s new bank lending hit an all-time high in the first quarter while broad credit growth quickened as the central bank kept up policy support for the economy after the lifting of stringent COVID-19 curbs.

The world’s second-largest economy rebounded from pandemic disruptions driven by consumption and infrastructure. To spur credit growth, the central bank in March cut banks’ reserve requirement ratio (RRR) for the first time this year.

That, and the fact lenders tend to front-load lending early in the year, pushed bank loans in the first quarter to a record of 10.6 trillion yuan ($1.54 trillion), up 27% from the first quarter of 2022 – the previous record.

For March, banks extended 3.89 trillion yuan in new yuan loans, more than double February’s tally and surpassing analysts’ expectations, data from the People’s Bank of China showed on Tuesday.

Analysts polled by Reuters had predicted new yuan loans would rise to 3.24 trillion yuan last month, versus 1.81 trillion yuan in February. The new loans were higher than 3.13 trillion yuan a year earlier.

Beijing’s lifting of its zero-COVID policy in December and other measures have started to rekindle credit demand though there are fears the momentum could fade given pressures from the global banking crisis and weaker demand for Chinese exports.

“China’s credit data remained strong in the first quarter of 2023, which sets a generally positive tone for the overall economic recovery,” said Zhou Hao, economist at Guotai Junan International.

“Infrastructure spending, which is supported by local governments, should play a critical role here. The medium to long-term lending from households also jumped in March, thanks to favorable property policies locally.”

Household loans, mostly mortgages, jumped to 1.24 trillion yuan in March from 208.1 billion yuan in February, with medium- to long-term household loans rising to 634.8 billion yuan from 86.3 billion yuan in February, according to Reuters’ calculation based on the official data.

Corporate loans rose to 2.7 trillion yuan last month from 1.61 trillion yuan in February.

Several small and mid-sized banks in China have lowered their deposit rates, a move that could help ease costs as lenders face squeezed margins amid rising bank deposits.

China’s new household deposits rose to 2.9 trillion yuan in March from 792.6 billion yuan in February, pushing the first-quarter savings to 9.9 trillion yuan – versus 17.8 trillion yuan in the whole of 2022.

Analysts are closely watching that figure for signs that shell-shocked consumers are spending again amid lingering concerns over incomes and jobs, even as recent data painted a picture of a steady but uneven recovery.

Broad M2 money supply grew 12.7% in March from a year earlier, in line with estimates, while outstanding yuan loans expanded 11.8% – the highest in 17 months.

GROWTH MAY SLOW

Outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, grew 10% in March from a year earlier, hitting a four-month high.

TSF rose to 5.38 trillion yuan in March from 3.16 trillion yuan in February, and beat expectations for 4.5 trillion yuan.

But analysts believe the upward trend may not be sustained in the second half of the year.

“We expect broad credit growth to accelerate further over the coming months, driven by a recovery in the real estate sector and improved business confidence thanks to reopening,” Capital Economics said in a note.

“But credit growth may slow from the middle of the year. Lending will bump up against regulatory constraints. And with activity and credit demand bouncing back after the abandonment of zero-COVID, the focus of the PBOC seems to have shifted to defusing financial risks.”

China’s consumer inflation hit an 18-month low and factory-gate price declines sped up in March as demand stayed persistently weak, raising the odds for more easing to support the nascent recovery.

“The market is still struggling with the strong credit data and weak inflation figures, as the credit data reflects a firm policy stance which intends to boost growth, while the inflation numbers suggest that the underlying demand is not as strong as expected,” said Guotai Junan’s Zhou.

($1 = 6.8846 Chinese yuan)

(Reporting by Judy Hua and Kevin Yao; Editing by Jacqueline Wong)

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