BEIJING–Will China serve as a leading indicator for what the United States can expect in terms of loan growth in the coming months as a result of the coronavirus pandemic?
New numbers released by GlobalData show the Chinese consumer lending market, which recorded 16.3% growth in 2019, is expected to slow down to 6.2% to reach CNY46.7 trillion (US$6.7 trillion) in 2020.
The analysis by GlobalData’s Global Retail Banking Analytics reveals retail consumer loans in China registered a strong compound annual growth rate (CAGR) of 23.4% between 2015 and 2019 to reach CNY44.0 trillion (US$6.3 trillion) in 2019.
“However, the recent Covid-19 outbreak shook the Chinese economy and forced the country into lockdown,” the analysis reads. “As a result, the consumer loans market is expected to grow at a much slower CAGR of 11.4% over the forecast period (2020-2024) to reach CNY71.8 trillion (US$10.3 trillion) in 2024.”
Banks Take Hit
Given the scale of the disruption to the Chinese economy, Globaldata said the banking sector is also expected to be impacted. Chinese banks are expected to take a hit from the rise in bad loans as retail customers are most vulnerable. Consumer default rate at some banks in China has reached 4% up from 1% before the outbreak, Globaldata said.
The company noted unemployment rate in China jumped from 5.2% in December 2019 to 6.2% in February 2020. As a result, banks are expected to become more cautious and tighten lending criteria considering consumers’ current repayment capacity. “New retail loan applications would also see a drop as consumers become more cautious due to the growing economic uncertainty,” said Siddharth Agarwal, practice head of Financial Services at GlobalData. “Consumer spending will be impacted as more people will look to cut down on large value purchases and instead look to save money.
Mortgages in China
“Mortgage loans account for the largest share of consumer loans in China with almost 70% share in 2019,” Agarwal continued. “This segment is expected to see highest drop in growth rates as new home buyers will delay their purchase decision as they expect property prices to fall in light of the expected global economic slowdown. The Covid-19 outbreak has put a dent in the economy. While the recent government measures like lowering of interest rates will make borrowing easier, it may not be sufficient in encouraging retail consumer to take any long-term loans, particularly large value mortgages.”