Chinese banks extended 620 billion yuan ($99.76 billion) in local-currency loans in February, missing market expectations of 750 billion yuan as the central bank moved to withdraw liquidity to ward off inflationary risks.
Bank lending is a focal point for investors trying to assess the bias in China's monetary policy as loans are made at the government's behest in the state-directed financial system, although China has seen a sharp rise in banks' off-balance-sheet financing in recent years.
The level of new loans in February was down sharply from January's 1.07 trillion yuan, suggesting the central bank's step to drain short-term cash from the banking system has worked amid signs a recent tide of capital inflows into China is receding.
New loans in February still outstripped December's 454.3 billion yuan and November's 522.9 billion yuan.
"Bank lending slowed in February due to the central bank's liquidity move and also cooling capital inflows," said Hua Zhongwei, senior economist at Huachuang Securities in Beijing.
"I think monetary policy will be neutral in the near term."
The lending data came a day after the government said inflation rose to a 10-month high in February while factory output and consumer spending were weaker than forecast.
Data from the National Bureau of Statistics showed the consumer price index rose 3.2 percent in February from a year ago, versus expectations of a 3.0 percent rise. Annual factory output growth in January and February combined was 9.9 percent, the lowest since October 2012 - the beginning of China's nascent economic recovery.
Hua said he expected inflation to ease to 2.6-2.7 percent in March, reducing pressure on the central bank to tighten policy.
MOPPING UP LIQUIDITY
The People's Bank of China (PBOC) has started to mop up short-term cash from the banking system. Media has reported that the central bank has signalled to commercial banks to slow lending.
The central bank drained a net 253 billion yuan from the banking system through its open market operations in February.
Volatile capital inflows may have slowed in February, especially after the government's recent move to tighten property controls, analysts said.
The government in early March unveiled a package of measures, including levying a 20 percent tax on capital gains, to calm frothy home prices.
China's broad M2 money supply grew 15.2 percent in February from a year earlier, the central bank said in a statement on its website, www.pbc.gov.cn, beating expectations of 15.1 percent rise but falling from the previous month's 15.9 percent rise.
The PBOC has set a 13 percent annual target for M2 growth in 2013, down from last year's actual growth of 13.8 percent.
The government aims for 7.5 percent annual economic growth this year and 3.5 percent annual inflation.
Outstanding yuan loans in February rose 15 percent from a year earlier, slightly lower than the 15.3 percent consensus forecast in a benchmark Reuters poll and was down from January's 15.4 percent pace.
The central bank said China's total social financing aggregate, a broad measure of liquidity in the economy, stood at 1.07 trillion yuan.
The social financing, a broad measure of liquidity in the economy that include corporate bonds and trust loans, jumped an annual 23 percent to a record 15.8 trillion yuan in 2012, while new loans rose 10 percent to 8.2 trillion yuan.
($1 = 6.2147 Chinese yuan)
(Reporting by Sui-Lee Wee, Judy Hua and Kevin Yao; Editing by Robert Birsel)