China's July new yuan loans expected to more than halve from June: Reuters poll

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FILE PHOTO: Chinese 100 yuan banknotes are seen in a counting machine while a clerk counts them at a branch of a commercial bank in Beijing

BEIJING (Reuters) - China's new yuan loans are expected to fall back in July after record lending in the first half, a Reuters poll showed, but they are still likely to exceed the year earlier amount as the central bank seeks to underpin the economic recovery.

Chinese banks are estimated to have issued 1.10 trillion yuan ($162.81 billion) in net new yuan loans last month, less than half the 2.81 trillion yuan in June, according to the median estimate in the survey of 23 economists.

It would still be higher than the 1.08 trillion yuan issued in the same month a year earlier.

Chinese banks doled out 13.68 trillion yuan in new loans in the first six months of 2022, the highest first-half number on record, central bank data showed.

"While loan supply remained ample, in contrast to policymakers' strong push to accelerate loan growth in June (quarter-end month), commercial banks might feel relatively less urgency in extending loans in July as it is the first month of a quarter," analysts at Goldman Sachs said in a note.

"Government bond issuance also slowed materially as the majority of full-year local government special bond issuance quota were fulfilled by June this year."

The world's second-largest economy barely grew in the second quarter as widespread COVID-19 lockdowns hammered demand and business activity.

China will try hard to achieve the best possible results for the economy this year, a high-level meeting of the ruling Communist Party said last month, tempering previous calls that it will strive to meet its 2022 growth target.

Analysts expect the central bank to keep policy accommodative to support the economy's recovery as several factors, including slowing global growth and cost pressures, drag on overall output.

Goldman Sachs expects the central bank to cut banks' reserve requirement ratio (RRR) - the amount of cash that banks must hold as reserves - later this year.

Outstanding yuan loans were expected to grow by 11.2% in July from a year earlier, the same as in June, the poll showed. Broad M2 money supply growth in July was seen at 11.4%, also at the same pace as in June.

Local governments issued a net 3.41 trillion yuan in special bonds in the first six months, the finance ministry data show, as authorities accelerated special bond issuance for infrastructure to prop up the economy.

China has set the 2022 quota for local government special bond issuance at 3.65 trillion yuan, unchanged from last year.

Any acceleration in government bond issuance could help boost total social financing (TSF), a broad measure of credit and liquidity. Outstanding TSF rose 10.8% in June, up from 10.5% in May.

In July, TSF is expected to fall sharply to 1.30 trillion yuan from 5.17 trillion yuan in June.

(Polling by Devayani Sathyan; Reporting by Judy Hua and Kevin Yao; Editing by Shri Navaratnam)