Chinese banks' loan books are likely to expand more slowly in the coming quarters, analysts said, after growing to a new record in the third quarter as banks heeded the government's call to lend more aggressively to the pandemic-hit economy.

As of Sept. 30, total outstanding yuan loans at Chinese financial institutions rose 12.97% to 169.37 trillion yuan from the prior year, according to data from the People's Bank of China.

Household loans remained the biggest driver of new credit, with the outstanding balance up by 14.50% year over year. Loan balance of nonfinancial corporates and government departments also increased by 12.59%, although that of nonbanking financial organizations fell 33.85% from a year earlier as lenders scaled back on interbank assets amid a tougher regulatory environment on shadow banking.

There is a "limited and moderate" upside of new loans issued in the fourth quarter as "there is limited room for further system-wide credit easing and boosting of loans, but window guidance should allow more liquidity to flow to the real sector to sustain growth," Bruce Pang, head of macro and strategy research at China Renaissance, told S&P Global Market Intelligence.

China's GDP further expanded in the third quarter of 2020, increasing 4.9% year over year after a 3.2% expansion in the second quarter, as the world's second-largest economy became the first major economy to rebound from the coronavirus pandemic.

"Unless there is a renewed COVID-19 surge domestically, or a return of widespread lockdowns in other major economies, we think China’s economy has bottomed out and policymakers are less likely to depend more on new lending push to engineer economic growth in the fourth quarter," Pang said.

Banks may also be hard-pressed to lend further as they grapple with fee cuts, loan payment forbearance, rising nonperforming loans and loan loss provisions, which could limit the lender's capability to lend a lot more, he added.

"Although short-term corporate loan growth has slowed in the recent months from the faster pace seen in the first half, corporates' appetite for mid- and long-term loans has grown significantly, suggesting that the corporate sector has likely turned more positive on their business outlooks and are ramping up their capex plans," he said.

As of Oct. 27, US$1 was equivalent to 6.71 Chinese yuan.