Fresh bank loans in mainland China plunged to their lowest in 22 months in October, but the collapse was probably a result of seasonal causes, and policymakers are still expected to increase support for the slowing economy in the coming months.
For over a year, Chinese regulators have been trying to boost bank lending and lower financing costs, especially for small and private firms which generate a significant share of economic growth and jobs in the nation.
Yet domestic demand remains slow as spending and sales are declining, while US-China trade friction is weighing on exports, indicating a need for more fiscal support.
"We think the central bank will need to ease policy more vigorously in the coming months to fast-track a rebound in credit growth," Julian Evans-Pritchard disclosed in a report at Capital Economics.
In October, Chinese banks lent 661.3 billion yuan ($94.55 billion) in new yuan loans - the lowest since December 2017, central bank data showed Monday, a sharp decline from September, and a drop in analyst expectations.
Analysts polled by Reuters had predicted a fall in new yuan loans in October to 800 billion yuan, down from 1.69 trillion yuan in September.
In October, household loans, mainly mortgages, dropped from 755 billion yuan in September to 421 billion yuan, while corporate loans drop from 1.01 trillion yuan to 126.2 billion yuan.
"The data represents lower demand for credit from firms as the trade war has impaired their trust," said Nie Wen, an economist based at Hwabao Trust in Shanghai.
The large M2 money supply increased by 8.4 percent in October from a year ago, central bank data showed, meeting a consensus estimate in the Reuters poll. It rose in September by 8.4 percent.
Outstanding yuan loans rose from a year ago to 12.4 billion. Analysts expected the development of 12.5 percent, following the 12.5 percent growth in September.
Outstanding development in total social financing (TSF), a large indicator of finance and stability in the economy, decreased from a year ago in October to 10.6 percent and from 10.8 percent in September.
TSF covers off-balance sheet finance types that operate outside the traditional banking borrowing process, such as initial public offerings, investment company loans, and bond sales.
Last month, the latest TSF was down from 2.27 trillion yuan in September to 618.9 billion yuan - the lowest since July 2016.
It is anticipated that the central bank may continue its policy easing to support growth, but space for further intervention may be constrained by concerns about debt and housing threats, as growing food costs push upmarket inflation, analysts said.
