China’s strong mortgage growth unlikely to sustain in Q4, banks to postpone lending in Q1 2017

Strong mortgage growth in China is unlikely to sustain during the last quarter of this year, while banks are expected to postpone lending during the first quarter of 2017. The slow growth in corporate credit also signals banks’ concerns about the economic outlook and credit risks. Overall loan growth in Q4 is expected to moderate, consistent with the Chinese government’s overall policy of deleveraging.

Loan-term household loans declined to CNY489 billion in October from September’s CNY574 billion, October’s monetary data released by the People’s Bank of China (PBoC) showed Friday, suggesting that mortgage tightening measures by local governments have started to bite. The loans represented 75 percent of total new yuan loans in October.

Further, corporate credit fell sharply in October, the main reason behind the substantial decline in total new yuan loans during the month. Non-household loans slipped to CNY218bn in October, compared with CNY548bn last month.

While the decline may be partly due to seasonal effects because banks usually slow their lending activities in Q4, the contraction in non-household credit still suggests that underlying demand by corporates remains sluggish.

"Credit extension should remain sluggish in Q4. We believe that banks will want to postpone some lending to Q1 2017. We have the impression that regulators are tightening banks’ mortgage businesses," ANZ commented in its latest research report.