Demand for loans remains weak for Chinese banks

Lack of new loans continue to haunt China's four biggest banks in the first two weeks of May.

The banks hardly made any loans, thus extending poor credit growth in April, banking sources said.

More than 2 trillion yuan of deposits flowed out from the Big Four banks as of May 13, according to the Shanghai Securities Journal.

Two of the major banks issued loans of more than 10 billion yuan and "several" billion yuan in the first two weeks of the month, without identifying what they were for. The other two saw a drop in new lending, the source said.

The Big Four banks, Industrial & Commercial Bank of China Ltd, China Construction Bank Corp, Bank of China Ltd and Agricultural Bank of China Ltd, usually account for 30 percent of new yuan loans issued by China's whole banking system.

The dismal performance among the four banks came after a surprise drop in new loans last month. Financial institutions in China issued 681.8 billion yuan of loans in April, down from 1.01 trillion yuan in March and much lower than market expectations.

To step up credit easing, China's central bank said on Saturday it will cut banks' reserve requirement ratio by 0.5 percentage points, effective from May 18.

"We maintain our forecast that new loans of 2.3 to 2.4 trillion yuan should help an investment-led rebound in Q2 GDP growth but we need to monitor closely new bank credit and its composition," said Wang Tao, chief economist with UBS China.

The fact "shows that corporate demand for loans remains too weak to reverse the trend. With sluggish demand, an interest rate cut, even if an option in the future, is not necessarily an effective tool to ease the liquidity," said Zhou Hao, a global market analyst at ANZ China.

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