Chinese underground lending cools in April

April 30, 2017

by: FT Confidential Research

Our Underground Lending Index fell in April to 59.2, down 8.1 points year-on-year and below the average of 59.7 recorded over the previous 12 months. More respondents reported falling interest rates and a reduction in bad debt. Consumers and the real estate sector yet again led demand for loans but were also the main sources of bad debt.

• The FTCR China Lending Volume Index fell in April but remained well above the average of 62 recorded over the previous 12 months.
• The index slipped to 64.6, from 71.5 in March, with 52.3 per cent of respondents reporting a month-on-month increase in business, down from 58.5 per cent.
• Lenders were slightly less optimistic for the coming month, with the outlook index dipping to 69.1 from 71.3.

• Our Lending Rate Index suggested six months of rising rates ended in April.
• The index fell 10.3 points month-on-month and 4.2 points year-on-year to 50, right on the line that separates increasing and decreasing rates.
• The Interest Rate Outlook Index rose to 46.2 from 45.5, with a majority of respondents saying they expected rates to remain unchanged in the coming month.

• Our index measuring bad debt levels among underground lenders fell in March.
• The FTCR China Bad Debt Index slid 3.1 points month-on-month to 42.7, with 25.8 per cent of lenders reporting that bad debt levels fell, up from 16.7 per cent in March.

• By industry, consumers (61.5 per cent) and the real estate sector (52.3 per cent) again dominated demand for credit, followed by small business (46.2 per cent) and manufacturing (40 per cent).
• For the first time in three months, most respondents — 43.5 per cent — cited consumers as the greatest source of credit risk, followed by real estate (30.6 per cent), financial services (25.8 per cent) and small business (24.2 per cent).

The FTCR China Underground Lending survey is based on interviews with more than 60 underground bankers. For further details click here. This report contains the headline figures from the latest Underground Lending survey; the full results are available from our Database.

FT Confidential Research is an independent research service from the Financial Times, providing in-depth analysis of and statistical insight into China and Southeast Asia. Our team of researchers in these key markets combine findings from our proprietary surveys with on-the-ground research to provide predictive analysis for investors.