Financing data for June indicates a continuation of the slowdown in aggregate social financing growth, marking the fourth consecutive month of deceleration, with a structural adjustment in financing channels emerging as a persistent trend. The phenomena of bond issuance substituting for bank loans and bill financing inflating credit figures remain present. Both household and corporate loan demand are weaker than the same period last year. The negative gap between M1 and M2 money supply widened month-on-month, signaling a decline in the velocity of money in circulation. The firm maintains a positive outlook on the banking sector's dividend value and selective stock opportunities, upholding its recommended rating.
China Galaxy Securities Co., Ltd. outlines its core analysis as follows:
Social Financing Growth Deceleration Persists, Structural Shift a Long-Term Trend
New aggregate social financing in June totaled 3.36 trillion yuan, a year-on-year decrease of 860.6 billion yuan. By the end of June, the outstanding balance of aggregate social financing grew by 7.40% year-on-year, down 0.26 percentage points from the previous month, extending the streak of slowing growth to four months. This month's social financing was primarily supported by government bond and corporate bond issuance, while credit demand remained relatively weak, with corporate bonds continuing to divert funds away from bank loans. According to a State Council Information Office briefing, the shift in financing structure may be long-term and trend-driven, reflecting profound adjustments in China's economic structure, the transition between old and new growth drivers, and the ongoing dynamic adaptation of the financial system alongside the deepening of supply-side structural reforms in finance.
Government Bonds Continue to Support Social Financing, Bond-for-Loan Substitution and Bill Financing Persist
In June, new yuan-denominated loans reached 1.77 trillion yuan, down 595 billion yuan year-on-year. New government bond issuance was 768.3 billion yuan, declining both month-on-month and year-on-year by 582.5 billion yuan, largely due to a high base effect. However, looking at actual issuance, total government bond issuance in June stood at 2.49 trillion yuan, remaining at a relatively high level. Corporate bond issuance increased by 401.2 billion yuan, up 159 billion yuan year-on-year. Domestic equity financing by non-financial enterprises rose by 62.8 billion yuan, an increase of 42.5 billion yuan year-on-year. Off-balance-sheet financing decreased by 134.4 billion yuan, a smaller contraction of 14 billion yuan compared to last year. Within this, undiscounted bankers' acceptances fell by 108.4 billion yuan, a smaller decrease of 81.6 billion yuan year-on-year, indicating more bill discounting was shifted into on-balance-sheet credit.
Household and Corporate Loan Demand Weaker Than Last Year
By the end of June, the outstanding balance of yuan-denominated loans at financial institutions grew by 5.2% year-on-year, down 0.3 percentage points from the previous month. For the month of June alone, new yuan-denominated loans from financial institutions amounted to 1.61 trillion yuan, higher than May's figure but down 630 billion yuan year-on-year. Household credit demand continues to be constrained by weak consumption and home purchase appetite, with low willingness to increase leverage, and the possibility of early mortgage repayments due to declining deposit rates cannot be ruled out. In June, household loans increased by 264.6 billion yuan, down 333 billion yuan year-on-year. Within this, short-term household loans rose by 106.1 billion yuan (down 156 billion yuan year-on-year), while medium-to-long-term household loans increased by 158.4 billion yuan (down 176.9 billion yuan year-on-year). Corporate loans increased by 1.5 trillion yuan, a decrease of 270 billion yuan year-on-year. Bill financing remained a key support for corporate loan growth, increasing by 114.4 billion yuan in June, up 525.3 billion yuan year-on-year. The reliance on bill financing indicates weak underlying credit demand, though the intensity has diminished compared to May. Medium-to-long-term corporate loans rose by 560 billion yuan (down 450 billion yuan year-on-year), and new short-term corporate loans were 820 billion yuan (down 340 billion yuan year-on-year). Insufficient demand is affecting corporate capital expenditure and expansion plans.
Velocity of Money Declines Month-on-Month, Contribution from Fiscal and Non-Bank Deposits Falls
In June, M1 and M2 grew by 4% and 8% year-on-year respectively. The M1-M2 negative spread widened to -4%, an increase of 0.9 percentage points month-on-month. By the end of June, yuan deposits at financial institutions grew by 8.2% year-on-year, a slowdown of 0.5 percentage points from the previous month. For June alone, yuan deposits at financial institutions increased by 1.99 trillion yuan, a decrease of 1.22 trillion yuan year-on-year. Specifically, household deposits rose by 1.95 trillion yuan, down 520 billion yuan year-on-year, likely influenced by deposit outflows or early mortgage repayments. Corporate deposits increased by 1.94 trillion yuan, up 162.7 billion yuan year-on-year. Fiscal deposits decreased by 938.5 billion yuan, a larger contraction of 118.5 billion yuan year-on-year. Concurrently, non-bank financial institution deposits fell by 990 billion yuan, a larger decrease of 470 billion yuan year-on-year.
Risk Factors to Consider
Potential risks include economic performance falling short of expectations and deterioration in asset quality; pressure on net interest margins from declining interest rates; and weakening demand due to tariff-related impacts.
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