China’s banks have broken last year’s record amount loaned in a year, extending a record 11.1 trillion yuan in just the first 11 months of the year, reported Chinese news agency Caixin based on monthly data from the central bank
The previous record, set last year, was 9.78 trillion yuan.
Most of the money was lent to troubled companies that stayed afloat only because banks gave them new loans to pay off old debts, with the remainder going to home mortgages and transport infrastructure, a source close to the People’s Bank of China said.
Several bankers told Caixin that they noticed more companies relying on new loans to repay old debt, especially in the industries of shipping, coal mining and steel manufacturing. All three industries are suffering from excess capacity.
In the past many of these companies would have relied on shadowy private lending for survival.
But as private lending networks unravel amid tighter regulatory scrutiny and an economic downturn, these companies were forced to turn to the banks for the funding to keep them afloat.
Banks were sometimes strong-armed by local government officials to extend loans to these companies because they feared letting them go under would cause social instability, a risk-management executive at one bank told Caixin.
“But these companies are doomed,” he said, adding that forcing banks to lend to them “amounts to dragging down the quality of the loans to non-performing.”
The banks have also seen strong demand from individuals who borrowed to buy homes and cars. Several banking industry analysts told Caixin that loans surged also because of soaring demand for capital from transport infrastructure projects, especially those related to railroads and trains.
Banks are willing to lend to those projects because they are seen as aligned with the central government’s goals of stabilizing the economy and increasing exports to countries through the “belt and road” initiatives, they said.
Official data show the banking sector had 1.92 billion yuan in bad loans as of October, about 2% of the total.