China's credit growth slowed down in April, with new loans missing expectations as the private sector demand and household loans remained weak.
Renminbi-denominated loans rose 8.59 trillion yuan in the first four months of the year, according to the People's Bank of China on Friday.
The new loans missed market expectations of 8.90 billion yuan and is lower than the previous month's 8.60 trillion yuan.
The drop in new loans by 10 billion yuan was mainly attributed to weaker loans in both the corporate and household sectors.
"New loans in the corporate sector may appear adequate on the surface, as they exceeded year earlier levels, but this was primarily attributable to a substantial volume of bill financing, which is not a genuine indicator of corporate credit demand," economists from Nomura said.
Under new loans, household loans dropped 490.2 billion yuan during the period between January and April, while loans to enterprises and institutions climbed 8.99 trillion yuan, and loans to non-bank financial institutions fell 193.5 billion yuan.
The downturn in household loans was a surprise to some analysts, especially that home prices in first-tier Chinese cities rose for the first time in March after nine months.
"This contradicts our observation that new home sales in 30 major cities rose 3.4% y/y at the same time," Zhaopeng Xing, ANZ's senior China strategist, said. "It may be explained by mortgage pre-repayments by households, due the low confidence in property."
"Notably, the relatively better housing market performance in major cities has yet to translate into a turnaround in household loan demand nationwide," analysts from Bank of America said in a note.
Meanwhile, total aggregate financing was 15.5 trillion yuan in the first four months of the year, 893 billion yuan less than the same period a year earlier. The market predicted a total aggregate financing of 16.1 trillion yuan.
Nomura's analysts said the aggregate financing declined to 7.8% year on year from 7.9% in March due to lower renminbi-denominated loans and government bond issuances.
The outstanding aggregate financing grew 7.8% year on year to 456.89 trillion yuan at the end of April.
Moreover, China's broad money supply, or M2, rose 8.6% year on year to 353 trillion yuan in April, while the narrow money supply, or M1, increased 5% to 114.6 trillion yuan, according to the Chinese central bank.
Market consensus expected an 8.5% growth for M2 and a 5.2% increase for M1.
Despite the slowdown, analysts expect some improvement in China's credit in the coming month.
"Looking ahead, we see investment stabilization as key to sustaining credit growth. With the April Politburo meeting signaling further government support for infrastructure investment, we remain hopeful that credit demand will start to stabilize in the coming months," BofA analysts said.
"There should be a floor to credit growth. We expect the authorities will tolerate a slowing pace of credit growth, but they are prepared to inject liquidity this year," Xing said. "
