China's yuan-denominated lending reached 900.8 billion yuan (147.4 billion U.S. dollars) in May, largely in line with market expectations, central bank data showed Thursday.
The volume picked up from 707.9 billion yuan in April but was 4.3 billion yuan less than the same period last year.
M2, a broad measure of money supply that covers cash in circulation and all deposits, increased 10.8 percent in May, quickening from the 10.1-percent gain seen in April.
Analysts attributed the accelerating M2 growth partly to the central bank's use of pledged supplementary lending (PSL), a monetary tool created last year that sees the central bank extend loans to policy banks at low interest rates.
The central bank said it had offered 262.8 billion yuan through PSL during the first five months this year.
The policy easing measures, together with financing support to local governments through the debt-swap program, which allows local governments to convert their debt to low-interest bonds, also played a part in the M2 growth, HSBC chief China economist Qu Hongbin noted.
Thursday's data also showed yuan deposits stood at 128.99 trillion yuan as of the end of last month, rising 10.9 percent year on year.
China's total social financing aggregate, a broad measure of liquidity in the economy, stood at 1.22 trillion yuan, compared with 1.05 trillion yuan a month earlier.
Qu said improving financial data may help boost liquidity in the real economy, but the effect will be limited.
"To make the policies more effective, China needs to relax the loan-to-deposit ratio to spur banks to issue loans," he added.
Chinese banking law requires banks to abide by a loan-to-deposit ratio, which, at 75 percent, has remained unchanged for years. The central bank last year expanded the caliber of what constitutes a bank's deposit in a bid to release more lending capital.
Growth momentum is yet to solidify in the world's second-largest economy despite a string of government-support policies, including three interest rate cuts since November.
Data on Thursday showed growth of China's industrial output picked up in May following a six-year low in March and a rebound in April, pointing to tentative signs of improvement.
To sustain momentum, the central bank needs to resort to more easing moves, according to Liu Dongliang, a senior analyst with China Merchants Bank. He predicts a cut in bank reserve requirement ratio to likely occur in June.
