China: Corporate sector facing financing stress – Nomura

The People’s Bank of China (PBoC) survey of around 3,200 banks shows that the bank loan demand index (a diffusion index where 50 marks the increase/decrease threshold) eased seasonally to 66.7% in Q2 from 70.9% in Q1, but is still far above the three-year Q2 average of 61.3%, notes the research team at Nomura.

Key Quotes

“By enterprise size, the bank loan demand indices for large, medium-sized and small enterprises were 58.0%, 60.6% and 64.5% in Q2, respectively, suggesting smaller enterprises have higher financing demands.”

“The bank loan approval index (another diffusion index) dipped to 44.0% in Q2 from 44.6%, implying banks are tightening access to bank loans. The gap between loan demand and loan approval indices remains high, pointing to financing stress.”

“We expect more easing measures ahead, such as a higher bank loan quota and further reserve requirement ratio cuts.”