BEIJING (Reuters) - Chinese banks extended more credit than expected in May as home loans expanded even as policymakers struggled to rein in riskier borrowings without dealing a sharp blow to economic growth.
As credit conditions tighten in the world's second-largest economy, borrowing costs for companies are rising. Banks are raising lending rates, including mortgage rates, and are wary of taking on more exposure to overheated sectors such as property.
That trend will set the stage for a gradual slowdown in economic activity in coming months, analysts believe, though no one foresees a sharp decline as stability is the watchword ahead of a major political leadership reshuffle later this year.
China's banks extended 1.11 trillion yuan ($163.4 billion) in net new yuan loans in May, central bank data showed on Wednesday, slightly up from 1.1 trillion yuan in April, and above the 900 billion yuan forecast in a Reuters poll.
The People's Bank of China (PBOC) has kept cash conditions relatively tight in recent months to support the government's de-leveraging efforts, but authorities have been careful not to squeeze conditions too much for fear that a spike in rates could hurt the economy.
The PBOC has drained 775 billion yuan from money markets via open market operations so far this year as its keeps a tight grip on short-term lending, while regulators have issued a slew of directives aimed at deterring riskier forms of borrowing.
But the central bank has also injected funds from time to time in various ways to soothe fears about a cash crunch, like that which some analysts believe it inadvertently triggered in 2013 in a similar clampdown on risk.
Still, in recent weeks lenders have been scrambling to raise cash ahead of quarterly health checks by the central bank, pushing up deposit rates and yields of wealth management products, media have reported.
The one-year Shanghai Interbank Offering Rate (SHIBOR) jumped to a two-year high of 4.4231 percent on Wednesday, above the PBOC's benchmark lending rate of 4.35 percent.
Higher funding costs will add to upward pressure on lending rates. Industrial firms' financial costs rose 4.2 percent in April from a year earlier, according to the statistics bureau.
The effects of the multi-pronged crackdown are starting to show up in weakened off-balance sheet financing, or shadow banking activity.
Total social financing (TSF), a broad measure of credit and liquidity in the economy, fell to 1.06 trillion yuan in May from 1.39 trillion yuan in April, the data showed.
Combined trust loans, entrusted loans and undiscounted banker's acceptances, which are common forms of shadow banking activity, fell sharply to 28.9 billion yuan in May from 177 billion yuan in April, according to Reuters calculations.
But household loans, mostly mortgages, rose to 610.6 billion yuan in May from 571 billion yuan in April, the data showed.
Household loans accounted for 55 percent of total new loans last month, up from 52 percent in April.
Chinese leaders have pledged to shift the emphasis to addressing financial risks and debt and asset bubbles which analysts say may spark a crisis in the economy if not handled well.
China's banks extended a record 12.65 trillion yuan in loans in 2016 as the government encouraged credit-fueled stimulus to meet its economic growth target.
Broad M2 money supply (M2) grew 9.6 percent from a year earlier, missing forecasts for an expansion of 10.4 percent and compared with April's 10.5 percent.
The M2 growth was the lowest since at least January 1996, when Reuters data on the series began.
The central bank said slower M2 growth could be a "new normal".
Outstanding yuan loans grew at 12.9 percent by month-end on an annual basis, faster than analysts' expectations of 12.8 percent.
Reporting by Beijing Monitoring Desk and Kevin Yao; Editing by Jacqueline Wong