* New loans 2nd highest ever at 2.03 trln yuan, nearly twice
* Total social financing rises to 3.74 trln yuan
* Outstanding loan growth slowest since May 2005
* Central bank has signalled move to gradual policy
* Tightening moves may be driving surge in shadow banking
(adds total credit growth data, further details)
BEIJING, Feb 14 Chinese banks extended 2.03
trillion yuan ($295.74 billion) in net new yuan loans in
January, the second-highest monthly tally on record, even as the
central bank tries to contain the risk from years of explosive
growth in debt.
While less than analysts had expected, new lending last
month was nearly double the 1.04 trillion yuan seen in December,
indicating credit growth in the world's second-largest economy
remains robust after last year's record pace.
New total social financing, a broader measure of credit to
the economy, totaled 3.74 trillion yuan in January, also up
sharply from December and higher than the same period last year.
Outstanding yuan loans grew at 12.6 percent by month-end on
an annual basis, the slowest growth rate since May 2005.
Analysts polled by Reuters had expected a rise of 13.4 percent.
Chinese banks usually "front load" loans early in the year
after the government renews their credit quotas, competing
fiercely to maintain market share and to lock in higher-quality
borrowers as soon as possible.
But lending in December also was much stronger than
expected, which some analysts attributed to corporate worries
that authorities may pressure banks to slow credit growth this
year while gradually raising borrowing costs.
The People's Bank of China raised key short-term money rates
in late January and early February, surprising markets and
reinforcing a signal to borrowers that it is intent on reducing
credit risks by moving to a tightening policy bias this year.
The rate increases followed media reports that the PBOC had
advised banks to slow down or curtail lending amid speculation
that January loans were unusually heavy.
Broad M2 money supply (M2) in January grew 11.3 percent from
a year earlier, central bank data showed on Tuesday, meeting
forecasts and unchanged from the previous month.
But a breakdown of the overall financing numbers appeared to
indicate a surge in less-regulated shadow banking activity,
possibly in response to the central bank's tougher stance.
New trust loans nearly doubled to 317.5 billion yuan as
companies turned to alternative sources of financing amid a
downturn in the corporate bond market.
TOUGH BALANCING ACT
China's debt to GDP ratio rose to 277 percent at the end of
2016 from 254 percent the previous year, with an increasing
share of new credit being used to pay debt servicing costs, UBS
analysts said in a recent note.
China has pledged reasonable credit growth this year after
last year's record 12.65 trillion yuan lending binge, but it
could be a tough balancing act for a government that has for
decades prioritised strong economic growth.
Higher interest rates could prod debt-laden firms into
deleveraging, though at the risk of stunting economic activity.
Similarly, overly aggressive moves to curtail asset bubbles and
speculation could spark price slumps in housing and financial
markets and fuel a spike in bad loans.
Analysts agree the central bank will move cautiously as it
monitors the impact of each measure on growth, while sending a
clear signal to lenders that it is intent on containing
For now, market watchers do not expect more aggressive
tightening, such as a hike in the benchmark policy lending rate.
"We think the PBoC has gradually shifted to a tightening
bias and policy rates (such as the 7-day repo rate) are likely
to gradually move higher this year," economists at ANZ said in a
research note after stronger-than-expected inflation data
earlier in the day.
"However, we do not think the economy is solid enough to
counter any broad tightening and policy makers should be careful
in directing market expectations."
ANZ senior China economist Betty Wang said that she expects
the PBOC to raise the 7-day repo rate by another 15 basis points
by the end of June as policymakers remain cautious.
To help cool the heated housing market, banks in some big
Chinese cities already have started to lower discounts on
lending rates for first-time home buyers, the China Securities
Journal reported earlier this month.
Even as the central bank raised short-term rates in recent
weeks, the increases were modest and it injected massive amounts
of money into the financial system to ensure markets remained
($1 = 6.8641 Chinese yuan renminbi)
(Reporting by Beijing Monitoring Desk and Elias Glenn; Editing
by Kim Coghill)