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原标题:Chinese banks:Where did consumer loans go

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We estimate 2/3to consumption, 1/3to home equity loans

冠亚体育网站,Slower credit and banking assets growth, but with improving mix

Adjusted credit growth at 15% yoy in Sept, the same as in Aug

    There is a notable trend in past months that China’s short-term consumer debthas suddenly been picking up to around 35% yoy and making up c.10% of netnew credit creation (see report China’s consumer debt boom). What puzzled usand the market is where this short-term credit was deployed. Our studies showthat the growth of short-term consumer debt was mainly driven by decentconsumption growth (c.2/3of Rmb1.4tr new consumption loans YTD), ashouseholds are borrowing more to buy autos and other goods online, decoratenew homes and travel. The other one-third is home equity loans, which were tofinance purchases of second homes under stricter home purchase restrictions.

    According to the latest data on loans/TSF and the banking system, China’sfinancial deleveraging has been orderly: credit growth softened further,M2/GDP continued to slide, shadow banking has been shrinking while loangrowth stayed resilient and wholesale funding declined. Another positivedevelopments this month is that short-term consumption loans have slowed ontighter rules, a notable portion of which was used to finance propertypurchases. From the financial system’s perspective, we see improvingtransparency and lower systemic liquidity risks. Big banks should be the keybeneficiaries of the neutralized monetary policy.Softened credit growth, leading to moderated system leveragePBOC released Oct new loans of Rmb663bn and TSF of Rmb1,040bn, bothfalling short of consensus. Including the new municipal bonds of Rmb340bn,the adjusted system credit growth slowed mildly to 14.9% yoy from 15.0% lastmonth. Notably, following a series of tightening regulations, banks are bringingoff-BS shadow banking into on-BS, leading to stable loan growth (13.0% yoy),but slower shadow banking growth. We note that banks, especially smallerbanks, have been shrinking their on-/BS receivable investments, which mainlyconsists of shadow banking credit. Slower credit growth resulted in slowerM2. Together, with pick-up in nominal GDP, it has led to lower M2/GDP,dropping to 206% in Oct 2017versus the record-high of 210% this March.

    PBOC reported Sept new loans of Rmb1.27tr and TSF of Rmb1.82tr, bothahead of consensus. But, if adding new municipal bonds of Rmb356bn, theadjusted system credit growth would be 15.0% yoy, same as the prior month.In detail, noticeably China households are levering up quickly. We welcome thepersonal loans driven by genuine consumption growth, but there may be anotable portion of short-term consumer loans that were used to financeproperty purchases, which in our view contains higher risks. Regulatorycrackdown on property-related consumer loans together with monetary policystaying neutral lead us to expect slower credit growth in 4Q17.

    Stable but decent growth in consumer goods partly explains the story

    Who is borrowing? Household borrowed less, while government levered up

    Who is borrowing? Household to lever up quickly

    We looked at the recent sales growth of major consumer goods and servicesthat may need short-term financing e.g. automobiles, online sales, homedecoration, home appliances and travel etc. Most of these consumer goodsdelivered stable, but decent growth of high-single digit to mid-teens yoy salesvolume. Meanwhile, the penetration of credit in consuming these goods andservices is rising steadily. Credit cards are clearly the key measure to obtainbank credit for consumption purposes, with the loan balance amounting toRmb4.7tr as of June 2017, up 31% yoy (see our report China’s credit cardboom for details). In our view, the underlying drivers include structuralconsumption upgrades, changes in consumer behavior and also wealth effectsfrom property price increases.

    A breakdown by borrowers suggests that the household/corporate sectorborrowed modestly less in Oct, with its new credit making up 29%/30% of thenew system credit (31%/40% in Sept); government accounted for 37% of thetotal new credit. For households specifically, monthly new short-term retailloan recorded Rmb79bn in Oct 2017against an average volume of Rmb171bnin 9M17. We attribute this to tightening scrutiny over consumption loans. Asdiscussed in our report Where did consumer loans go?, we estimate 1/3of newconsumption loans may be used to finance the purchases of second homes.Elsewhere, mortgage loan growth slowed to 24.4% yoy in Oct (Sept: 25.5%).

    A breakdown by borrower suggests household and corporate sectorscontinued to lever up, making up 31%/41% of new system credit in Sept(35%/38% in Aug). For households, while mortgage growth had slowed, s/tretail loan growth accelerated to 17.6% yoy in Sept (vs. 15.8% in Aug or 7.3%in 1Q17) to make up c.10% of credit creation. We attribute this to both decentconsumption growth with rising credit penetration and property-relatedlending. As highlighted in our report Where did consumer loans go?, weestimate 1/3of new consumption loans may be used to finance purchases ofsecond homes. However, PBOC and local CBRC offices have started to crackdown on property-related consumer loans in September and we expectconsumer loan growth momentum to moderate in the coming months.

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