New lending saw a slower growth in August as Chinese banks scaled back lending activities amid concerns over surging bad loans.

The "big four" State-controlled lenders, which accounted for about 45 percent of the nation's total loans in the first half, extended some 160 billion yuan ($23.43 billion) in August, China Securities Journal reported. The amount roughly leveled off with the 165 billion yuan they gave out in July.

Despite the strong tide of lending earlier this year, analysts said the second half would see Chinese bank's lending momentum easing significantly from six months ago.

Fu Lichun, banking analyst with Southwest Securities, expects Chinese lenders to extend more than 330 billion yuan in new loans in August while the total amount for the second half may not exceed 2 trillion yuan.

"Bank lending in China is typically front-loaded. New loans in the first half usually account for 70 percent of the total lending for the whole year," Fu said.

Chinese banks advanced a whopping 7.37 trillion yuan as new loans in the first six months mainly to finance the government-led infrastructure projects. The lending pace, however, slowed in July, when the amount lent shrank to 355.9 billion yuan.

"With massive lending in the first half laying the foundation for full year profit growth, many banks tend to turn cautious in the second half," Fu said.

The record setting lending so far has sparked market concerns on a resultant surge in bad loans, though it is yet to be reflected in the earnings reports.

But the credit card sector has started to show initial signs of deterioration as a result of the aggressive market expansion in the past few years as well as a drop in consumer income.

China Merchants Bank, one of the nation's top credit card issuers, reported a 3.31 percent credit card bad loan ratio at the end of June, up 0.54 percentage points from the beginning of the year. The mid-sized Industrial Bank saw its credit card bad loan ratio rising 0.68 percentage points over the six months before June.

China CITIC Bank said its credit card bad loans increased 357 million yuan in the first half, accounting for 20 percent of the total bad loans generated during the period. Bank of China, the only major lender which releases the breakdown of its credit card business in the half-year results, said its impaired credit card bad loan ratio was 4.25 percent at the end of June, up 0.07 percentage points from six months ago.

"With people's disposable income shrinking due to the downturn, many cardholders were unable to repay their dues," said an official at the credit card center of China CITIC Bank.

Fu said credit card bad loans ratio touching 5 percent is the "psychological line", and regulators may announce new measures to govern credit card business soon.

(China Daily September 4, 2009)