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UPDATE 2-China's Aug new bank loans rise more than expected, broad credit growth quickens

* Aug new loans 1.28 trln yuan vs f’cast 1.22 trln yuan

* Aug M2 money supply +10.4% y/y, vs f’cast of +10.7%

* Aug TSF growth quickens to 13.3% from 12.9% in July (Adds analyst comment)

BEIJING, Sept 11 (Reuters) - Chinese banks extended more new loans in August than expected, while broad credit growth quickened, pointing to continued policy support as the economy recovers from a record coronavirus-induced slump.

Banks extended 1.28 trillion yuan ($187.25 billion) in new yuan loans, up 29% from July and slightly exceeding analysts’ expectations, according to data released by the People’s Bank of China (PBOC) on Friday.

Analysts polled by Reuters had predicted new loans would rise to 1.22 trillion yuan, up from 992.7 billion yuan in the previous month but largely in line with a year earlier.

Household loans, mostly mortgages, rose to 841.5 billion yuan from 757.8 billion yuan in July, while corporate loans jumped to 579.7 billion yuan from 264.5 billion yuan.

The PBOC has rolled out a raft of support measures since early February, including cuts in lending rates and banks’ reserve requirements and targeted loan support for virus-hit companies.

But analysts say the central bank has now moved out of emergency mode to a more steady stance amid signs that the economy is quickly getting back on solid footing. Some analysts now believe there will be no more cuts to key interest rates this year.

“We anticipate a further acceleration in lending in the coming months,” Capital Economics said in a note.

“A further ramp-up in government bond issuance is planned over the remainder of the year. What’s more, stronger investment demand on the back of the ongoing economic recovery should prop up issuance of corporate bonds and equity.”

PBOC Governor Yi Gang has said new loans are likely to hit a record of nearly 20 trillion yuan this year and total social financing could increase by more than 30 trillion yuan.

Authorities have urged banks to offer cheaper loans and cut fees to help struggling businesses hit by the COVID-19 pandemic, though such support is weighing on lenders’ margins. The country’s five largest banks last month reported their biggest profit falls in at least a decade amid mounting bad loans.

August data so far showed exports rose at their quickest pace in over a year, while factory gate prices fell at a slower pace thanks to stronger industrial demand. Consumer demand, which has lagged, also appears to be turning the corner with auto sales up for a fifth straight month.

Broad M2 money supply in August grew 10.4% from a year earlier, below estimates of 10.7% forecast in the Reuters poll, which was the same pace as July.

Outstanding yuan loans grew 13.0% from a year earlier, unchanged from July’s pace and in line with expectations.

Most China watchers prefer to focus on the annual growth figures, which are a better guide to underlying trends in credit creation given that net issuance figures are highly seasonal.

BROAD CREDIT GROWTH QUICKENS

Annual growth of outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, quickened to 13.3% in August from 12.9% in the preceding month.

TSF was expected to be buoyed by a sharp acceleration in local governments’ bond issuance as they were asked to complete the issuance of special bonds by end-October.

Local government net debt issuance was at 920.8 billion yuan in August, finance ministry data showed, a sharp jump from 42.2 billion yuan in the previous month.

TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offerings, loans from trust companies and bond sales.

In August, TSF more than doubled to 3.58 trillion yuan from 1.69 trillion yuan in July. Analysts polled by Reuters had expected 2.73 trillion yuan.

Reporting by Lusha Zhang and Kevin Yao; Editing by Simon Cameron-Moore and Kim Coghill

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