New yuan loans continue to drop in May: Report

New yuan loans extended by Chinese lenders last month may have continued to drop from the previous month as economic activity falters and credit demand remains weak.

The four biggest State-owned banks extended 208 billion yuan ($33.6 million) in loans last month, in contrast to 245.5 billion yuan in April, the 21st Century Business Herald reported on Wednesday, citing anonymous sources.

It said Industrial and Commercial Bank of China and China Construction Bank maintained a stable lending pace by extending more than 70 billion yuan each, while lending by Agricultural Bank of China stood at 52 billion yuan.

Bank of China lent only 15 billion yuan in May, even lower than joint stock banks, the report said. "We feel borrowing demand among enterprises remains weak due to the still-gloomy economic recovery," said Ji Weibo, a manager at BOC's Xiamen branch.

He said a rise in non-performing loans this year has also made banks more cautious in extending new loans, especially to small and medium-sized enterprises.

China's official purchasing managers' index, a major indicator of manufacturing activity, rose from 50.6 in April to 50.8 in May, but HSBC's PMI for the economy fell from 50.4 in April to 49.2 last month.

Louis Kuijs, chief China economist at the Royal Bank of Scotland Group, said data suggest growth in China's industry is not yet fully convincing and broad-based.

Tao Yiping, general manager of BOC's Fujian branch, said weak credit demand and a relatively loose loan supply has gradually dragged down interest rates on loans.

New yuan loans fell to 792.9 billion yuan in April from 1.06 trillion yuan in March, according to central bank statistics.

Total social financing, including all loans, bond issuance and stock sales, fell to 1.75 trillion yuan in April from 2.54 trillion yuan the previous month.

E Yongjian, a senior analyst at Bank of Communications, said the drop in April was mainly due to slower growth in credit demand, and restraints from fewer deposits.

Lending in May will have remained stable, he said, while June might see an increase.

New deposits among the big four State-owned lenders in May exceeded 400 billion yuan, but the banks started to see a drop in deposits at the start of June, according to the 21st Century Business Herald report.

Although economic growth still lacks steam, the International Monetary Fund warned last week that reining in credit and social financing growth should be a priority for China, as such expansion might not be "sufficiently useful".

It lowered its 2013 growth forecast for China to 7.75 percent from 8 percent previously.

Song Yu, China economist at Goldman Sachs, said new loans in May might have dropped to 700 billion yuan, as the monetary authorities seem to have tightened control of supply.