Credit Chartbook: Elevated loan demand and rising volatility


Lending growth has turned more robust, but market volatility is now heightened amid more restrictive policy settings.
Group Research, Chang Wei Liang06 Sep 2022
  • Financing has shifted from market issuance towards bank lending amid elevated rates volatility
  • US and European loan growth are accelerating, but Chinese loan growth is reined in by risks
  • Credit ETF losses had been sharp in 2022 amid rising yields and concerns from restrictive policy
  • Default risks are idiosyncratic for the US, but China‚Äôs real estate sector faces a wave of defaults
  • EM Asian loan growth is recovering, and the region should stay resilient despite Fed tightening
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Loan growth in the US and Europe had accelerated in 1H22 to their fastest pace since 2008, though aggressive rate hikes by the Fed and ECB may now weigh. For China, loan growth was stable in 1H, and may ease in 2H amid rising risks from a heavily indebted corporate sector. Chinese bank loans now amount to USD32trn.

In credit markets, US issuance has eased but Europe and China saw a rise in net issuance for 1H22. US net issuance slipped to USD200bn in 1H, the lowest since 2018. The swift upward re-pricing of Fed rate hikes, accompanied by wider credit spreads had weighed, and could continue to weigh in 2H. European net issuance rose markedly to EUR110bn, as issuers hurry to market before ECB policy tightening starts in 2H. Chinese net issuance rose slightly to CNY2.2trn, with activity largely driven by LGFVs now as real estate credit is shunned amid increased defaults.




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Chang Wei Liang

FX & Credit Strategist
weiliangchang@dbs.com


 
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Completed Date:  6 Sep 2022 11:10:07 (SGT)
Dissemination Date: 6 Sep 2022 11:10:07 (SGT)
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