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Chinese bank lending just slowed sharply

Photo by Kevin Frayer/Getty Images

After soaring by the most on record in January, new bank lending in China slowed sharply last month, falling back to 726.6 billion yuan according to the People’s Bank of China (PBOC).

The figure, below the 2.51 trillion yuan level of January, missed expectations for an increase of 1.2 trillion yuan.

In response to the record lending spree of January, there were reports that the PBOC increased the reserve requirement ratio (RRR) –- the amount of cash that banks must hold –- for some banks who boosted lending too quickly during the month.

This, along with the Lunar New Year holiday, may have contributed to the sharp slowdown seen in February.

It may have also prompted fresh stimulus from the PBOC who slashed its reserve requirement ratio (RRR) for all Chinese banks by 50 basis points to 17% on February 29.

With the February figure coming close to half the level expected, the total value of outstanding yuan loans increased by 14.7% from 12 months earlier, again below the 15.3% pace of January and expectations for growth of 15.2%.

Like bank lending, M2 and total social financing (TSF) figures also missed to the downside.

M2, or broad money that includes cash in circulation and bank deposits, increased by 13.3% from February 2015, down again on the 14.0% pace of January and forecasts for a deceleration to 13.8%. Despite the slowdown, the figure is around the governments 2016 target level of 13%.

Total social financing – the broadest measure of liquidity that captures lending from non-traditional sources – slowed sharply, increasing by 780.2 billion yuan from 3.42 trillion in January. It was also 580.7 billion yuan less than the level of a year earlier.

The weak credit report follows a series of economic data misses from China in February. Manufacturing and services purchasing managers indices (PMI) both missed expectations while Chinese trade data, led by an enormous drop in exports, also underwhelmed.

Later on Saturday China’s National Bureau of Statistics is scheduled to release industrial output, retail sales and urban fixed asset investment figures for the January-February period.

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