BEIJING (Reuters) - Chinese banks extended a record 2.51 trillion yuan (£345.16 billion) of new loans in January, well above expectations, while growth in money supply quickened to a 19-month high, suggesting Beijing is keeping monetary policy loose to counter a prolonged economic slowdown.
Economists polled by Reuters had expected new yuan loans to surge to a near seven-year high of 1.8 trillion yuan in January, tripling from 597.8 billion yuan in December.
Analysts attributed the lending spike to increased cash injections by the central bank ahead of the long Lunar New Year holidays in early February, a traditional tendency among Chinese banks to "front load" loans at the start of a year and reduced foreign borrowings.
"Chinese banks expanded their balance sheet aggressively in the first month of this year, which implies implicit support from the government to counter the economic slowdown," said Zhou Hao, Commerzbank (DE:CBKG) Asia senior emerging markets economist in Singapore.
Analysts also attributed the surge in new loans to soaring demand for mortgages and government steps to fast-track big infrastructure projects to spur economic activity.
The People's Bank of China injected 1.53 trillion yuan in liquidity via its standing lending facility (SLF), medium-term lending facility (MLF) and pledged supplementary lending (PSL) ahead of the long holiday to avert any risks of a cash crunch.
Some China watchers believe the PBOC's preference for liquidity injections could delay long-expected additional cuts to its policy interest rate and bank reserve ratio requirements (RRR), which authorities worry could put further depreciation pressure on the yuan currency.
According to sources, Zhang Xiaohui, an assistant governor at the PBOC, has said the central bank would not rush to cut the amount of cash banks must hold in reserves, as doing so could send a strong signal on policy easing.
But while the central bank may shun cuts in RRR and interest rates in the near term, it may still have to ease policy to support the economy, although fiscal stimulus is likely to play a key role, analysts say.
China will fine tune monetary policy and keep the yuan basically stable while guarding against systemic financial risks, the country's central bank said on Saturday in its fourth-quarter monetary policy report.
Bank lending usually spikes in China in January as banks, which face limits on how much they can lend each year, squeezes much lending as possible into the first month to protect their market share.
The spike in new loans in January also could be due to Chinese companies making early repayments of their foreign-denominated loans and bonds to reduce their currency exposure after the yuan weakened, analysts say.
China Eastern Airlines 600115.SS 0670.HK said last month it had recently repaid $1 billion worth of dollar debt to reduce its exposure to currency volatility.
Broad M2 money supply (M2) in January rose 14.0 percent in January from a year ago, beating expectations of 13.4 percent and quickening from December's 13.3 percent.
Outstanding loan growth was 15.3 percent in January. Analysts polled by Reuters had expected outstanding loans to grow by 14.4 percent, versus the previous month's 14.3 percent.
Total social financing, a broader measure of overall liquidity in the economy, was 3.42 trillion yuan in January, versus 1.82 trillion yuan in December.
China is expected to target economic growth in a range of 6.5 percent to 7 percent this year, sources have said, setting a range for the first time because policymakers are uncertain on the economy's prospects.
The world's second-largest economy grew 6.9 percent in 2015, its weakest expansion in a quarter of a century, as activity was weighed down by sluggish demand at home and abroad, massive industrial over capacity, cooling investment and a weak property market.
