An employee counts banknotes at an Industrial and Commercial Bank branch in Nanjing, Jiangsu Province. The Chinese government rolled out a series of tightening measures in April to cool rocketing property prices. [China Daily]

Despite government calls to tighten mortgage loans, fresh lending in April is likely to pick up from March, leading to a steady growth in credit in the second quarter, analysts said on Friday.

As the regulator demanded a more balanced pace of lending this year, analysts expect new loans to exceed 600 billion yuan (US$87.88), or even top 700 billion yuan, in April, after dipping to 510.7 billion yuan in the previous month. The central bank is scheduled to release April lending figures next week.

"We expect new loans to grow steadily with no big surge or decline in the coming months, balanced by robust credit demand and government regulation to keep lending under control," said E Yongjian, a researcher at Bank of Communications.

Mounting inflationary pressure and asset bubble risks are clouding the Chinese economy this year after nearly 9.6 trillion yuan in new loans flooded into the market in the previous year to help bolster the slowing economy.

The central bank revived the lending quota mechanism, a method to cope with economic overheating in early 2008, to help contain credit growth. To this end, Chinese lenders are allowed to give out roughly 2.25 trillion yuan in new loans in the second quarter, accounting for 30 percent of the 7.5 trillion yuan target set by the authority.

In the first three months, more than one third of the 2.6 trillion yuan in new loans was directed to real estate developers and homebuyers, causing market concerns that the recent government crackdown on the property market will dampen lending growth.

The Chinese government rolled out a series of tightening measures in April to cool rocketing property prices, including higher mortgage rates and down payments for second homebuyers and a ban on lending to buyers of third homes. However, analysts said the clampdown would not have much of an impact on bank lending, as more follow-up funds are needed to support government-backed projects and overall demand from the private sector remained robust.

"The government tightening measures will dent mortgage lending in the coming months, but this might not be reflected in the April figure, as the market needs some time to digest the policy," said She Minhua, a banking analyst with Haitong Securities.

"In this case, more banks, especially medium-sized lenders, will turn to small- and medium-sized enterprises that are willing to pay higher interest rates," he said.

(China Daily May 8, 2010)