UPDATE 3-China Oct loan data disappoints, points to further slowing in economy
* Oct new loans 697 trln yuan vs f'cast of 862 billion yuan
* Oct M2 money supply up 8.0 pct y/y vs f'cast of 8.4 pct
* Oct TSF 728.8 bln yuan, vs 2.21 yuan trillion in Sept
* Jan-Oct loans jump but credit conditions tighten
* Policy easing so far not turning around lending-analyst
(Adds details)
By Kevin Yao and Lusha Zhang
BEIJING, Nov 13 (Reuters) - China's credit growth slowedsharply in October, despite pressure by regulators on banks tohelp keep cash-starved companies afloat, pointing to furtherweakening in the economy in coming months.
While October is typically a slow month for Chinese credit,growth in key gauges such as total social financing and moneysupply fell to record lows, reinforcing views that policymakerswill need to step up efforts to revive flagging investment.
The weaker trend also suggested overall credit conditions inChina tightened last month despite recent easing in monetarypolicy, including moves by the central bank to bring down marketinterest rates and four cuts in banks' reserve requirements sofar this year.
"October credit data is weaker than expected," said LuoYunfeng, an analyst at Merchants Securities in Beijing.
However, Luo believes the room for further policy easing islimited as Beijing remains concerned about controlling debt and
financial risks, which were fuelled by past spending binges.
Chinese banks extended 697 billion yuan ($100.23 billion) innet new yuan loans in October, central bank data showed onTuesday, much less than expected.
Analysts polled by Reuters had predicted new loans of 862billion yuan in October, down from 1.38 trillion yuan inSeptember but well ahead of seasonal norms as lenders began toheed regulators' calls to support smaller firms hit by theeconomic slowdown, especially those in the private sector.
However, Chinese banks are wary of a fresh spike in badloans after years of pressure from regulators to reduce riskierlending. Chinese bank shares tumbled on Friday on fears theywill be saddled with more non-performing loans.
Corporate loans tumbled to 150.3 billion yuan in Octoberfrom 677.2 billion yuan a month earlier.
HOUSEHOLD DEBT CLIMBING
Household loans, mostly mortgages, fell to 563.6 billionyuan from 754.4 billion yuan in September.
Household loans accounted for 80.9 percent of total newloans in October, versus 54.7 percent in the preceding month,according to Reuters' calculations based on central bank data.
In its financial stability report earlier this month, thecentral bank highlighted the sharp rise in household debt inrecent years, noting it needed to be monitored. Analysts havewarned the jump could undermine Beijing's efforts to spurconsumer spending.
Outstanding short-term consumer loans rose 37.9 on-year in2017 and the total household debt to GDP ratio was at 49 percentat the end of last year, the central bank said in the report.
MORE POLICY STEPS EXPECTED
Money supply growth was also markedly weak, in furtherevidence that companies are reluctant to make fresh investmentsas U.S. tariffs on Chinese goods add to uncertainties about thedemand outlook at home.
"With credit growth still cooling, economic activity looksset to come under further pressure in the coming months," JulianEvans-Pritchard, senior China economist at Capital Economics,said in a note.
"We expect officials to step up policy easing in response,including benchmark lending rate cuts and off-budget fiscalstimulus."
Most analysts, however, don't expect policymakers to cutbenchmark rates any time soon, but could step up tax cuts andinfrastructure spending to put a floor under the slowingeconomy.
China's economic growth cooled to 6.5 percent in the thirdquarter year-on-year, its slowest pace since the global economiccrisis, and pressures will build sharply from January year whenhigher U.S. duties are due to take effect.
Luo expects economic growth to slow further to 6.0 percentin the third quarter of 2019 before recovering.
Broad M2 money supply grew 8.0 percent in October from ayear earlier - matching a record low hit this June. Analysts hadexpected M2 to rise 8.4 percent, edging up from September.
M1 money supply rose just 2.7 percent on-year, the weakestpace since January 2014.
Outstanding yuan loans grew 13.1 percent from a yearearlier, below expectations and easing from September.
To be sure, loan growth in China has looked more solid on alonger time horizon. New bank loans in the first 10 months of2018 totalled 13.84 trillion yuan, up 17 percent from a yearearlier and eclipsing last year's full-year record of 13.53trillion yuan.
But growth of China's outstanding total social financing(TSF) slowed to 10.2 percent from a year earlier, again anall-time low, central bank data showed, suggesting the increasedlending barely compensates for shrinking "shadow" loans.
Combined trust loans, entrusted loans and undiscountedbankers' acceptances, which are common forms of shadow bankingfinance, fell by 267.5 billion yuan in October, following aslide of 2.3 trillion yuan in the first nine months.
One key reason for the decline was that local governmentshad maxed out their bond quotas after a rush of debt issuance inthe third quarter, Capital Economics said.
After a lengthy clampdown, Beijing has been pushing localgovernments to spend on infrastructure projects again as part ofits growth boosting measures. China will release investment data on Wednesday along with industrial output and retail sales.
(Reporting by Lusha Zhang and Kevin Yao; Editing by KimCoghill)
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