BEIJING (Reuters)

China’s new yuan loans likely fell sharply in July compared to the previous month due to weak credit demand and seasonal factors, despite the central bank’s support for the economy.

Chinese banks are estimated to have issued 450 billion yuan ($62.80 billion) in net new yuan loans last month, down about 79% from June’s 2.13 trillion yuan, according to a survey of 19 economists.

The expected new loans, however, are higher than the 345.9 billion yuan issued in the same month last year.

Analysts indicate that bank lending typically decreases in July for seasonal reasons. Over the first half of the year, banks issued 13.27 trillion yuan in new loans, compared to a record 15.73 trillion yuan the previous year.

Despite the expected dip in new loans for July, year-on-year lending growth—which reflects underlying trends—may exhibit some stabilization. Analysts at Capital Economics noted that the contraction in home sales has eased in recent months, which should positively impact mortgage disbursements, alleviating pressures on household lending.

Outstanding yuan loans were projected to grow by 8.8% year-on-year last month, consistent with June’s growth rate.

In July, broad M2 money supply growth is estimated to be 6.1%, a slight decline from 6.2% in June, based on a survey of 26 economists.

The People’s Bank of China (PBOC) recently surprised markets by cutting significant interest rates, including its medium-term lending facility (MLF) rate, to stimulate growth. The PBOC has committed to reducing financing costs and enhancing counter-cyclical adjustments in its recent meetings.

Challenges such as a prolonged property downturn and stagnant household income expectations have weakened both business investment and consumer confidence. July’s economic indicators demonstrated a slowdown in exports, while consumer prices rose faster than anticipated due to weather-related disruptions in food supplies.

Additional activity data, including retail sales, industrial output, and investment for July, is expected next week, providing further insights into the economic momentum for the latter half of 2024.

An increase in government bond issuance could aid in stimulating total social financing (TSF) growth, which decreased to 8.1% in June from 8.4% in May. In July, TSF is anticipated to drop to 1.1 trillion yuan, down from 3.3 trillion yuan in June.

($1 = 7.1658 Chinese yuan renminbi)

(Polling by Rahul Trivedi and Devayani Sathyan; Reporting by Ellen Zhang and Kevin Yao; Editing by Shri Navaratnam)