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Iris Pang, economist at ING, suggests that the China’s loan growth drop from CNY1.69 trillion to CNY1.02 trillion in April was more than expected.  

Key Quotes

“The seemingly smooth progression of trade talks last month signalled that exporters would not be facing any additional tariff hikes and therefore gave China’s central bank, the PBoC, a reason to limit banks’ loan growth. There’s no need to place an extra burden on banks when the environment is stable.”

“We do not agree with the market that the slower loan growth means lower loan demand. Loan demand in China has been strong from infrastructure projects and small- and medium-sized companies.”

“But we believe credit growth in May will be higher than April and could be similar to the scale seen in March, which was CNY1.69 trillion.”

“We believe there will be targeted reserve requirement ratio (RRR) cuts and targeted lending from the medium-term lending facility (MLF) to release liquidity to banks and then to small exporters. Though this creates some relief for small exporters, it will put extra pressure on banks as the credit risk associated with small creditors is usually higher.”