Chinese banks new loans crashes to $186b in August as credit crunch hits SMEs

Banks have been shunning riskier corporates over consumer loans.

Reuters reports that the new loans extended by Chinese banks fell from $211b in July to $186.95b (CNY1.28t) in August despite policy efforts to stimulate lending for credit-short SMEs.

“Financing demand is relatively weak as firms are unwilling to borrow,” Luo Yunfeng, chief analyst at Merchants Securities in Beijing told Reuters.

Outstanding yuan loans booked double-digit growth worth 13.2% YoY in August.

In a breakdown, corporate loans fell from $94.93b (CNY650.1b) to $89.47b (CNY612.7b) in August whilst household loans picked up sharply from CNY634.4b to CNY701.2b, adding to growing evidence that banks are embracing consumer loans over riskier corporates that could book deteriorating asset quality.

The government has been actively encouraging banks to ramp up lending to struggling firms and has since cut the required reserve ratio by three times this year.

However, banks remain cautious after their nonperforming loans hit a nine-year high from $26.56b (CNY182.9b) in Q1 to a whopping $284.64b (CNY1.96t) in Q2 as the deleveraging campaign squeezed liquidity conditions in the banking sector which accelerated the rate of slippages and deteriorating asset quality.

Here’s more from Reuters: