China banks still suffering from sluggish corporate loans

Weak economic demand to blame again.

According to Barclays, the People’s Bank of China (PBOC) released data on 11 September 2015 showing that August TSF rebounded to RMB1.08tn (Bloomberg consensus RMB1tn), driven by higher new RMB loans and a smaller decline in bankers’ acceptances. 

Domestic FX loans declined at a faster pace, which could remain weak going forward until RMB FX rate expectations stabilise. Although RMB loan growth picked up in August, it was mainly attributed to mid- to long-term retail loans and discounted bills.

Here's more from Barclays:

New corporate loans remain sluggish, suggesting still weak demand from the economy. M2 grew by 13.3% y/y in August, the same as in July, while M1 accelerated to 9.3% (6.6% in July), likely because retail investors temporarily parked funds from the stock market into demand deposit accounts as they waited for an investment opportunity.

Besides monthly monetary data, the PBOC also introduced a revised assessment method for banks’ deposit reserves, which requires banks to meet RRR on a period-average basis instead of a daily basis.

The new rules, in our view, should give banks more flexibility in managing liquidity and thus reduce money market volatility in the long run. Currently, we believe the impact should be neutral as there is sufficient liquidity in the market.

Total new loans amounted to RMB 810bn in August, slightly below Bloomberg consensus of RMB 850bn. New loans were mainly driven by mid- to long-term retail loans of RMB 286bn as well as discounted bills of RMB 246bn.

General corporate loan growth remained sluggish, with short-term and mid- to long-term loans increasing by only RMB 68bn and RMB 122bn respectively in the month, implying still weak demand from the real economy.

Loans to non-bank FIs, which caused large distortion to the headline number in July, had only a slight impact (-RMB 55bn) in August.