China's August loans ease fears of tighter credit

New loans in China rebounded last month, beating expectations, as banks continued to pump money into the economic recovery effort.

Over 410 billion yuan was loaned out in August, up from 356 billion yuan in July and higher than the 320 billion yuan forecast.

Many have feared the government was putting a squeeze on credit, which reached a massive 7.4 trillion yuan in the first seven months of the year. This is more than double the figure from the same period last year.

Lian Ping, chief economist of Bank of Communications, said, "The growth of new loans shows that demand for loans was strong in the physical economy. This comes from central government supported projects, recovery and expansion from manufacturers, exporters and property developers."

But the August figure is considerably less than the 1.23 trillion yuan monthly average for loans in the first half of the year. Observers say its partly because banks have almost reached their lending limits.

Zhao Xijun, director of Finance & Securities Research Inst., Renmin Uni., said, "Banks have lent out so much money that they now find themselves short of funds, or reaching regulatory lines. Regulators of course have to assure bank risks are under control. This will be a factor for banks' new loans for the rest of the year."

Experts predict bank credit to remain stable through to the end of the year as the recovery strengthens.

Guo Tianyong, director of Banking Research Center, Central Uni. of Finance And Businewss, said, "It's possible that new loans in September and October will be even higher than August. That's on the condition that more government supported projects are to be launched and companies shift their finance channels from issuing bonds to bank loans. But monthly new loans will not likely exceed half a trillion yuan again. And bank loans for the whole year are likely to be within 10 trillion yuan."

Economists said the central bank was unlikely to rush to tighten credit conditions before the end of 2009. Although it may fine-tune monetary policy to mop up excess liquidity.