China's April new yuan loans seen falling as demand weakens-Reuters Poll

© Reuters. 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, China, March 30, 2016. REUTERS/Kim Kyung-Hoon

BEIJING (Reuters) - China's new yuan loans are expected to have dropped in April after a rebound in March as credit demand weakened, a Reuters poll showed, even as the central bank keeps policy accommodative to support the slowing economy.

The Chinese economy has taken a hit as authorities raced to stop the spread of record COVID-19 cases, which have led to a full or partial lockdown in dozens of Chinese cities, including a city-wide shutdown in the commercial hub of Shanghai in April.

Chinese banks are estimated to have issued 1.52 trillion yuan ($226.32 billion) in net new yuan loans last month, half of the 3.13 trillion yuan in March, according to the median estimate in the survey of 18 economists.

But the expected new loans would be higher than 1.47 trillion yuan issued in the same month a year earlier.

Analysts believe the expected fall in new loans in April was due to weaker demand for credit from businesses and seasonable factors as Chinese banks rushed to extend more loans towards the end of the first quarter.

"Despite policy-easing efforts, credit demand likely deteriorated further in the month as production was suspended in a large part of the economy," analysts at Goldman Sachs (NYSE:GS) said in a note.

To cushion a sharp slowdown in economic growth, the central bank cut the amount of cash that banks must hold as reserves from April 25, and more modest easing steps are expected.

China will take steps to support its economy, including embattled internet platforms, as risks grow from its COVID-19 outbreaks and conflict in Ukraine, a top decision-making body of the ruling Communist Party said last month.

China has pledged to keep money supply and total social financing growth basically in line with nominal economic growth this year.

Outstanding yuan loans were expected to grow by 11.4% in April from a year earlier, the same as in March, the poll showed. Broad M2 money supply growth in April was seen at 9.9%, up from 9.7% in March.

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.

Goldman Sachs expects year-on-year growth of outstanding TSF to quicken to 10.8% in April form 10.6% in March.

In April, TSF is expected to fall to 2.15 trillion yuan from 4.65 trillion yuan in March.

($1 = 6.7163 Chinese yuan renminbi)