Bank / Credit Union

Chinese banks face slow lending with cash overflow

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May 31, 2022

Chinese banks are currently overflowed with cash, with few borrowers in sight due to COVID-19 outbreaks and lockdowns. Loan growth has continued to shrink both in April and in May in China, according to a report by Yahoo! Finance.

In order to deal with decreasing house sales, banks have had to swap bills with each other to meet regulatory requirements for lending. Many businesses and individuals are more cautious about borrowing money due to uncertainty over whether the Chinese government will implement further lockdowns due to COVID-19 outbreaks.

In response to these circumstances, The People's Bank of China told lenders to "go all out" to increase loans and to lower mortgage rates. However, banks are continuing to see near-zero interest rates on interbank loans.

"The near-zero interest rate shows the imbalance between credit supply and demand remains outstanding," Wang Yifeng, chief banking analyst at Everbright Securities Co., said in the report.

Companies are also more hesitant to sell debt, with the amount of onshore corporate bonds to fall behind the value of maturity in May at $15.3 billion.

As for the housing issue, it may take some time to boost demand, according to the report.

"Housing demand is hard to boost immediately," CRIC analysts including Yang Kewei said in the report. "Buyers are unsure whether developers can deliver the projects on schedule, whether home prices will drop, and if they'll be able to continue repaying mortgages," the analysts wrote. "The resurgence of the outbreak has dampened residents' expectations of stable income."