• News
• 2024-09-04

Credit Demand Weak, Awaiting Continued Growth Policies

In July, the social financing and credit performance fell short of market expectations. The pattern of government bonds as support and credit as a drag continued, and it may become the "new normal" for the slowdown in social financing and credit growth rates in the future, with the indicative role of total data potentially weakening. Currently, China's financing demand is relatively weak, and credit demand remains persistently weak, with the need for continued efforts in stable growth policies.

On August 13th, the People's Bank of China released the social financing and financial data for July. In July, social financing increased by 770.8 billion yuan, an additional 234.2 billion yuan year-on-year; the stock growth rate of social financing was 8.2%, up by 0.1 percentage points month-on-month; in July, the increase in RMB loans was 260 billion yuan, 85.9 billion yuan less than the same period last year; the year-on-year growth rate of RMB loans was 8.7%, down by 0.1 percentage points month-on-month; the growth rate of M1 was -6.6%, down by 1.6 percentage points month-on-month; the growth rate of M2 was 6.3%, up by 0.1 percentage points month-on-month.

Looking at the structure of social financing (increment), net financing of government bonds is the main supporting factor for the year-on-year increase in social financing. The amount of corporate direct financing has also increased. In July, government bonds increased by 280.2 billion yuan year-on-year, corporate bonds increased by 73.8 billion yuan year-on-year, and stock financing decreased by 55.5 billion yuan year-on-year. Against the backdrop of concentrated credit distribution in the first half of the year, credit seasonally retreated in July, with RMB loans decreasing by 113.1 billion yuan year-on-year. The drag effect of off-balance-sheet financing on social financing weakened, with off-balance-sheet financing in July decreasing by 97 billion yuan year-on-year, of which entrusted loans and undiscounted bank acceptance bills increased by 33.8 billion yuan and 88.8 billion yuan year-on-year, respectively, and trust loans decreased by 25.6 billion yuan year-on-year.

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Looking ahead, direct financing is expected to continue to support the growth of social financing. On the one hand, the increase in corporate bond financing may reflect to some extent the tendency of enterprises to replace traditional loans with bond issuance, which also echoes the "healthy substitution effect of direct financing" mentioned in the central bank's monetary policy report. This trend is expected to be further strengthened. On the other hand, the Central Political Bureau meeting at the end of July clearly emphasized "accelerating the issuance and use of special bonds, and making good use of ultra-long-term special treasury bonds," and it is expected that government bonds will provide stable support for social financing in the second half of the year.

The growth in loans mainly comes from bill financing, and long-term loans to residents are warming up. In July, the increase in RMB loans was 260 billion yuan, 85.9 billion yuan less than the same period last year. In terms of structure, bill financing increased significantly, with an increase of 558.6 billion yuan in July, an additional 198.9 billion yuan year-on-year. Enterprises may choose bills with short terms and high liquidity as a financing method due to the demand for short-term working capital and risk aversion.

On the corporate side, short-term loans decreased by 171.5 billion yuan year-on-year, partly due to replacement by bills; long-term loans decreased by 141.2 billion yuan year-on-year, which may be affected by insufficient effective demand and concentrated financing in the previous period. On the resident side, consumption continued to be weak, with short-term loans decreasing by 82.1 billion yuan year-on-year; although long-term loans increased by 77.2 billion yuan year-on-year, there was no significant warming in the real estate sales data of 30 cities in July. The reason for the data divergence may be that as business activities gradually recover, the demand for long-term business loans also increases.

The growth rate of M2 rebounded, and the growth rate of M1 continued to decline. In July, the year-on-year growth rates of M2 and M1 were 6.3% and -6.6%, respectively, changing by 0.1 percentage points and -1.6 percentage points from June. The growth rate of M2 remained at a reasonable level higher than the nominal GDP growth rate, and the financial support for the real economy was relatively stable. The spread between M1 and M2 continued to widen, possibly because under the background of calling off "manual interest supplementation," corporate demand deposits are still transforming into financial products that are not included in M1, such as wealth management. Looking at the structure of deposit increments, in July, RMB deposits increased by 320 billion yuan year-on-year, of which corporate deposits decreased by 250 billion yuan year-on-year, resident deposits decreased by 480 billion yuan year-on-year, and non-bank deposits increased by 340 billion yuan year-on-year.

Overall, the total amount of credit distribution in July was reasonable and moderate, and the quality and efficiency of supporting the real economy continued to improve; with the accelerated development of corporate direct financing and the acceleration of government bond issuance, social financing is expected to achieve stable growth - these changes provide a suitable monetary environment for the stable operation of the banking industry.

The main contribution to the year-on-year increase in social financing in July came from the issuance of government bonds and corporate bonds. In July, government bonds increased by 691.1 billion yuan, an additional 280.2 billion yuan year-on-year; corporate bonds increased by 202.8 billion yuan, an additional 74.7 billion yuan year-on-year. RMB loans decreased by 7.67 billion yuan, and the social financing口径 first showed a negative value. Looking ahead to the whole year of 2024, considering the current acceleration of government bond issuance and the low base in the second half of 2023, the growth rate of social financing is expected to stabilize at 8%.Credit demand remains persistently weak, and policies aimed at stable growth need further reinforcement. July is traditionally a slow month for credit, with an increase of 260 billion yuan in new RMB loans, 85.9 billion yuan less than the same period last year. Looking at different sectors, retail credit demand continues to be weak. In July, household loans decreased by 210 billion yuan, 9.3 billion yuan more than the same period last year. Short-term household loans decreased by 215.6 billion yuan, 82.1 billion yuan more than the same period last year; this reflects the residents' pessimistic expectations, and the issues of insufficient willingness to consume and financing demand still exist. Household medium and long-term loans increased by 10 billion yuan, 77.2 billion yuan more than the same period last year. The current gap between the stock and new mortgage interest rates has widened, which also promotes residents to continue to repay loans in advance, offsetting the increase in mortgage loans. The household sector is still in the stage of deleveraging, and the subsequent credit increase may still be limited.

On the other hand, the growth of corporate loans is generally weak, with a significant phenomenon of bill financing. In July, corporate loans increased by 130 billion yuan, 107.8 billion yuan less than the same period last year. Short-term loans decreased by 550 billion yuan, 171.5 billion yuan more than the same period last year; bill financing increased by 558.6 billion yuan, 198.9 billion yuan more than the same period last year.

If we consider both on-balance-sheet and off-balance-sheet bill financing, the short-term capital demand of enterprises remains weak. Structurally, under the effect of comparative pricing and expected low interest rates, some enterprises have shifted their short-term financing needs from credit to bonds and bills. Corporate medium and long-term loans increased by 130 billion yuan, 141.2 billion yuan less than the same period last year. Based on this, whether the subsequent issuance of government bonds will drive the allocation of supporting corporate medium and long-term loans needs further observation.

The growth rate of M1 exceeded expectations and declined, and the trend of deposit regularization continued. M1 decreased by 6.6% year-on-year. After the impact of "manual interest supplementation" faded, the growth rate of M1 further declined in July compared to June, mainly reflecting the current low level of corporate operational activity. Looking at the spread between M1 and M2 growth rates, the trend of deposit regularization continues.

The decline in household deposits was less than expected, and the rectification of "manual interest supplementation" is nearing its end. In July, corporate deposits decreased by 1.78 trillion yuan, 250 billion yuan more than the same period last year; it is expected that this was mainly affected by the rectification of "manual interest supplementation." Looking at the year-on-year decline in corporate deposits from April to July, they were 1.73 trillion yuan, 660 billion yuan, 1.06 trillion yuan, and 250 billion yuan less than the same period last year, respectively, with the decline gradually narrowing. According to the central bank's second-quarter monetary policy implementation report, as of the end of June, the rectification progress of "manual interest supplementation" in 21 national banks has exceeded 90%. It is expected that the impact of this factor will gradually fade in the subsequent months. Household deposits decreased by 330 billion yuan, 479.3 billion yuan less than the same period last year; non-bank deposits increased by 750 billion yuan, 337 billion yuan more than the same period last year.

Despite the social financing increase of 770.8 billion yuan in July, which was 234.2 billion yuan more than the same period in 2023 and lower than the 1.02 trillion yuan expected under the Wind consensus; the stock of social financing increased by 8.2% year-on-year, and the growth rate increased by 0.1 percentage points month-on-month compared to the low base effect of the same period in 2023.

Analyzing the structure of social financing, the relative insufficiency of effective demand combined with seasonal factors, the main form of on-balance-sheet credit is bill financing. In July, the increase in new RMB loans decreased by 76.7 billion yuan, 113.1 billion yuan less than the same period in 2023. Undiscounted bills of exchange increased on a year-on-year basis under the low base of the same period in 2023. In July, undiscounted bank bills of exchange continued to decrease by 107.5 billion yuan, 88.8 billion yuan less than the same period in 2023; new trust loans were -2.6 billion yuan, 25.6 billion yuan more than the same period last year; entrusted loans increased by 34.6 billion yuan, 33.8 billion yuan more than the same period last year.

Under the condition of relatively insufficient credit demand, government bond financing continues to support social financing. In July, new government bond financing increased by 691.1 billion yuan, 280.2 billion yuan more than the same period last year. Under the condition of low credit growth, fiscal support for social financing will continue and may further increase. Corporate bond financing increased year-on-year, and stock financing continued to decrease. In July, new corporate bond financing was 202.8 billion yuan, 73.8 billion yuan more than the same period in 2023; stock financing increased by 23.1 billion yuan, 55.5 billion yuan less than the same period last year, which is expected to be related to the continuous optimization of IPO and refinancing policies.

In terms of credit allocation, in July, new loans increased by 260 billion yuan, 85.9 billion yuan less than the same period last year, lower than the 456 billion yuan expected under the Wind consensus; the credit balance increased by 8.7% year-on-year, and the growth rate continued to decline by 0.1% month-on-month compared to the previous month.

Analyzing the credit structure, household loans were generally low, and the decline in real estate sales in July, the sustainability of the new real estate policy to boost the market was limited. In July, household short-term loans and medium and long-term loans changed by -215.6 billion yuan and 10 billion yuan, respectively, compared to -82.1 billion yuan and 77.2 billion yuan in the same period in 2023. Corporate loans mainly relied on bill financing, with insufficient effective demand. Corporate short-term loans, medium and long-term loans, and net bill financing were -550 billion yuan, 130 billion yuan, and 558.6 billion yuan, respectively, with increases of -171.5 billion yuan, -141.2 billion yuan, and 198.9 billion yuan compared to the same period last year. Non-bank credit increased by 205.7 billion yuan, 113 billion yuan less than the same period last year.By tracking the prosperity of mortgage loan demand in July and August, it is known that the transaction area of commercial housing in 10 major cities and 30 major cities in July was 1.309 million square meters and 2.582 million square meters, respectively, which fell back under the influence of seasonal factors, and the sales area is still lower than the same period in previous years. As of August 10, the transaction area of commercial housing in 10 major cities and 30 major cities was 1.067 million square meters and 2.074 million square meters, respectively, which was lower than that in July.

From the perspective of liquidity, in July, the year-on-year growth rate of M2 rebounded slightly, M1 continued to decrease negatively and decreased month-on-month, and the scissors difference between M2 and M1 further expanded. In July, M0, M1, and M2 increased by 12%, -6.6%, and 6.3% year-on-year, respectively, with changes in the year-on-year growth rate of 0.3 percentage points, -1.6 percentage points, and 0.1 percentage points compared to the previous month. The difference in growth rate between M2 and M1 was 12.9%, which was 1.7 percentage points higher than the previous month. The year-on-year growth rate of deposits increased by 6.3%, which was 0.2 percentage points higher than the previous month.

Government bonds support social financing, while credit drags it down.

In July, the increase in new deposits decreased by 800 billion yuan, which was 320 billion yuan less than the same period in 2023, and was related to the end of the quarter, and deposits returned to wealth management and other asset management products to a certain extent. Looking at the breakdown, in addition to the expansion of non-bank financial institution deposits, other deposits have decreased. In July, resident deposits decreased by 330 billion yuan, which was 479.3 billion yuan less than the same period in 2023; corporate deposits decreased by 1.78 trillion yuan, which was 250 billion yuan more than the same period in 2023; fiscal deposits increased by 645.3 billion yuan, which was 262.5 billion yuan less than the same period in 2023; non-bank deposits increased by 750 billion yuan, which was 337 billion yuan more than the same period in 2023.

From the above analysis, it can be seen that the social financing growth rate rebounded in July, supported by government bonds and dragged down by credit. In July, the increase in new social financing was 770 billion yuan, which was lower than market expectations (the average forecast value of Tonghuashun was 1.03 trillion yuan), and increased by 230 billion yuan year-on-year, mainly due to the year-on-year increase of 280 billion yuan in government bonds, while the year-on-year decrease of 120 billion yuan in RMB loans to the real economy was the main drag. At the end of July, the stock of social financing was 395.72 trillion yuan, with a year-on-year growth rate of 8.2%, which was 0.1 percentage points higher than the previous month.

Both the total amount and structure of credit are relatively weak, and the characteristic of an increase in bills is very clear. In July, under the credit口径, the increase in RMB loans was 260 billion yuan, which was lower than market expectations (the average forecast value of Tonghuashun was 454 billion yuan), and decreased by 85.9 billion yuan year-on-year. Among them, resident loans decreased by 210 billion yuan in the month, which was 9.3 billion yuan more than the same period last year: short-term loans decreased by 215.6 billion yuan, which was 32.1 billion yuan more than the same period last year, indicating that resident confidence and consumption willingness are still insufficient; medium and long-term loans increased by 10 billion yuan, which was 77.2 billion yuan more than the same period last year. The transaction area of commercial housing in the top 30 cities decreased by 18.45% year-on-year, still lingering at a low level, but the decline has narrowed for five consecutive months. Cinda Securities believes that after the "517" real estate market new policy, the sentiment of the home-buying market has improved on the margin, but it is still weak at present, and the performance of the future market still needs to be observed. Corporate loans decreased by 107.8 billion yuan year-on-year, with both short-term and medium and long-term loans being weak, short-term loans decreased by 171.5 billion yuan year-on-year, and medium and long-term loans decreased by 141.2 billion yuan year-on-year, which may be due to the late issuance of government bonds in the first half of the year and the slow progress of project implementation, resulting in insufficient supporting financing demand; bill financing increased by 198.9 billion yuan year-on-year, and the volume was significant.

Overall, the current credit performance is still relatively weak, which may be due to the overdraft of credit in June, the rectification of "manual interest supplementation", the optimization and adjustment of the financial industry's value-added calculation method to "squeeze out the water" in financial data, the regulatory guidance for balanced credit allocation, and the insufficient demand for entity financing. From the perspective of structure, credit resources are inclined to key areas and weak links of the national economy, but in the short term, the demand for loans in new kinetic energy fields is difficult to fully continue the decline in demand in traditional fields, and the pain of the transformation of new and old kinetic energy is inevitable.

The issuance of government bonds has accelerated, and corporate bonds have increased year-on-year. In July, direct financing increased by 298.5 billion yuan year-on-year, mainly due to the acceleration of government bond issuance (an additional 691.1 billion yuan in the month, the third in the same period of history, an increase of 277.3 billion yuan year-on-year) and corporate bonds increased by 74.6 billion yuan year-on-year, while stock financing decreased by 55.5 billion yuan year-on-year. In July, off-balance-sheet financing decreased by 97 billion yuan year-on-year, among which, non-standard improved ( entrusted loans increased by 33.6 billion yuan year-on-year, trust loans decreased by 25.5 billion yuan year-on-year), and the amount of undiscounted bank acceptance bills decreased by 88.8 billion yuan year-on-year. In July, the total amount of "on-balance-sheet + off-balance-sheet" bills increased by 287.7 billion yuan year-on-year, and the stock growth rate increased by 1.92 percentage points month-on-month to 4.57%.

The growth rate of deposits and M2 has risen, while the growth rate of M1 has continued to decline. At the end of July, the balance of RMB deposits increased by 6.3% year-on-year, which was 0.2 percentage points higher than the end of the previous month. In July, RMB deposits decreased by 800 billion yuan, which was 320 billion yuan less than the same period last year, among which, resident deposits decreased by 479.3 billion yuan less than the same period last year, and non-bank deposits increased by 337 billion yuan more than the same period last year, becoming the support, while fiscal deposits decreased by 262.5 billion yuan less than the same period last year, and non-financial corporate deposits decreased by 250 billion yuan more than the same period last year, becoming the drag.

In July, the year-on-year growth rate of M1 decreased by 1.6 percentage points to -6.6%, and the year-on-year growth rate of M2 increased by 0.1 percentage point to 6.3%. The scissors difference between M2 and M1 expanded by 1.7 percentage points compared to June. The continuous decline of M1 may mainly be due to the standardization of "manual interest supplementation", the impact of cracking down on fund arbitrage, the transformation of corporate demand deposits into wealth management, and the weak demand for entity financing, coupled with the impact of "squeezing out the water" in financial data, resulting in a decrease in deposit derivation.Focus on investment opportunities in bank stocks under the new normal of financial aggregate data. In July, the social financing and credit performance were below market expectations, with government bonds continuing to support and credit acting as a drag. The impact of the current financial data "squeezing out water" continues to emerge, and it may be the "new normal" for the slowdown in social financing and credit growth rates in the future, with the indicative role of aggregate data potentially weakening. Currently, China's financing demand is relatively weak, and policy support is still needed to achieve the annual economic and social development goals.

Recently, the central bank held its second half of 2024 work conference, proposing to increase financial support for the real economy, focusing on key areas such as people's livelihood and consumption, and strengthening the financial "five major articles." It is necessary to coordinate policies, make full use of structural monetary policy tools, continue to prevent and resolve financial risks in key areas, and support the resolution of platform debt risks and the prevention and resolution of real estate financial risks.

For banks, the overall credit growth center may shift downward in the future, but the credit structure is expected to continue to optimize. The fields of people's livelihood consumption and new drivers, which are supported by policy, are expected to form new growth points. The short-term interest spread may still be under pressure, and the control of liability costs and risk control level may become the focus of the market in the next stage.

Looking forward to the continuous effect of policy efforts, the social financing growth in July was relatively weak, with an increase lower than market expectations. The new social financing in July was 7708 billion yuan, an increase of 2342 billion yuan year-on-year. At the end of July, the stock of social financing increased by 8.2% year-on-year, an increase of 0.1 percentage points compared to the end of June. Looking at the structure of new social financing in July, direct financing increased by 9170 billion yuan, an increase of 2985 billion yuan year-on-year, which was the main support for the year-on-year increase in social financing. The loan increase was lower than market expectations. In July, the social financing口径 RMB loan decreased by 767 billion yuan, an increase of 1131 billion yuan year-on-year.

The credit increase in July was still concentrated on the corporate side. Corporate loans increased by 1300 billion yuan, a decrease of 1078 billion yuan year-on-year; among them, corporate medium and long-term loans increased by 1300 billion yuan, a decrease of 1412 billion yuan year-on-year; corporate short-term loans decreased by 5500 billion yuan, an increase of 1412 billion yuan year-on-year. Against the background of rectifying "manual interest supplementation," some enterprises may have repaid short-term loans with high-interest demand deposits. The bill financing increased by 5586 billion yuan, an increase of 1989 billion yuan year-on-year. In late July, the bill rate decreased. At the end of July, the six-month bill rediscount rate of state-owned large banks and joint-stock banks broke through 1%, the lowest value since 2024. It is expected that after the concentrated loan release at the end of the half-year, the overall credit demand in July was overdraw, and financial institutions increased bill rediscount at the end of the month.

Resident credit demand is still relatively weak, but there has been a marginal improvement. In July, resident loans decreased by 2100 billion yuan, basically the same as the same period in 2023. Since the introduction of the real estate "517 new policy," various places have successively introduced detailed policies to respond, and the new policies of the first-tier cities' real estate market have also been fully implemented in late June. At the end of July, the year-on-year decline in transaction area of commercial housing in 30 large and medium-sized cities continued to narrow compared to June.

The growth rate of M1 continued to decline, and the growth rate of M2 stabilized and rebounded. In July, the year-on-year growth rate of M1 was -6.6%, a decline of 1.6 percentage points month-on-month; the year-on-year growth rate of M2 was 6.3%, an increase of 0.1 percentage points month-on-month. Since the second quarter, the growth rate of M1 has been in the negative range. The reasons are: first, after prohibiting "manual interest supplementation," some high-interest demand deposits of enterprises turned to repay loans or purchase financial management; second, the pace of credit expansion has slowed down, and the deposit derivation ability has weakened.

Although the current credit demand is relatively weak, the impact of the slowdown in credit growth on bank performance is basically controllable in the short term. Since 2024, loans have continued to increase less year-on-year, but from the second-quarter operating data of banks, except for rural commercial banks, the net profit growth rate of other types of banks has achieved upward repair. Moreover, recently, the regulatory authorities have increased the intensity of "stable growth," and the social financing and credit increase are expected to improve marginally. In addition, the impact of "manual interest supplementation" has been gradually digested, and the pressure of data "squeezing out water" is expected to be reduced.

In July, the central bank lowered the 7-day reverse repurchase rate and LPR. With the decline in the comprehensive financing cost of society, the financing demand of the real economy is expected to increase. With the acceleration of government bond issuance, the construction of projects such as ultra-long-term special treasury bonds, central budget investment, local government special bonds, and additional treasury bonds issued in 2023 is expected to be accelerated, and the direct financing and project supporting credit demand driven by government bonds are expected to be boosted. In addition, the regulatory attitude towards credit allocation is more positive than before, and the central bank proposed to "deeply explore effective credit demand and accelerate the transformation of reserve projects."In July, the new RMB loans increased by 260 billion yuan, which was 85.9 billion yuan less than the same period last year. At the end of the half-year, some financial institutions still had a phenomenon of rushing scale. The seasonal decline in credit distribution in July led to a year-on-year decrease in corporate, residential, and non-bank loans, and the total amount and structure need to be improved. Firstly, corporate loans decreased by 107.8 billion yuan year-on-year, among which, the general corporate loans decreased negatively year-on-year, reflecting that the corporate financing demand still needs to be improved; while the bill financing increased by 198.9 billion yuan year-on-year, banks may have used bills to rush the volume at the end of the month to supplement credit, and the rediscount yield at the end of July accelerated downwards. Secondly, residential loans decreased by 210 billion yuan, an increase of 9.3 billion yuan less than the same period last year, among which, short-term loans decreased by 82.1 billion yuan year-on-year, reflecting that the residents' income expectations have not improved, and the demand for consumer financing has declined; long-term loans increased by 77.2 billion yuan year-on-year. In the current environment where the overall demand for mortgages is still not strong, it may be the personal business loans that drive the scale of residents' long-term loans to rise. Thirdly, non-bank financial institution loans increased by 205.7 billion yuan, 11.3 billion yuan less than the same period last year. The new absolute level is high, and the reason for the less increase is the high base in the same period.

With the gradual implementation of fiscal policy, credit demand still needs to be repaired. The slight increase in social financing growth in July is partly due to the low base in the same period of 2023; on the other hand, the implementation of fiscal policy has increased, and with the issuance of ultra-long-term special treasury bonds and the guidance of the Ministry of Finance for localities to accelerate the issuance and use of special bonds, the issuance of government bonds in the second half of the year has accelerated. In July, government bonds increased by 691.1 billion yuan, an increase of 280.2 billion yuan year-on-year, which is the main contribution to the growth of social financing. However, the overall structure of social financing still needs to be improved: firstly, the RMB credit in the social financing口径 decreased by 76.7 billion yuan, an increase of 113.1 billion yuan less than the same period last year, and the credit to the entity is weak; secondly, off-balance-sheet financing decreased by 75.5 billion yuan, an increase of 97 billion yuan less than the same period last year, among which, the undiscounted bank acceptance bills decreased by 88.8 billion yuan less than the same period last year, and non-standard and bill issuance both support social financing; thirdly, direct financing increased by 18.3 billion yuan year-on-year, among which, corporate bond financing increased by 202.8 billion yuan, an increase of 73.8 billion yuan year-on-year, and some companies may replace credit financing through bond issuance.

In July, the M2-M1 spread widened, mainly due to factors such as manual interest supplementation rectification and weak corporate operating collections, but with the basic implementation of rectification measures, the impact on M1 and M2 in the future may gradually weaken. From the total amount, the RMB deposits in July decreased by 80 billion yuan, an increase of 32 billion yuan less than the same period last year, and the decrease may be due to the low base in the same period and the weakening impact of interest supplementation rectification. From the structure, corporate deposits decreased by 25 billion yuan year-on-year. Under the influence of income expectations, it is difficult for residents' deposits to transform into corporate deposits, such as the significant impact on real estate company sales collections; fiscal deposits decreased by 26.25 billion yuan year-on-year, which is the main drag, due to the implementation of fiscal policy in the second half of the year, and fiscal expenditure causes funds to flow to residents and enterprises; residents' deposits decreased by 47.93 billion yuan year-on-year, which may be due to the impact of income expectations, residents increase savings and reduce consumption; non-bank deposits increased by 33.7 billion yuan year-on-year, on the one hand, due to the disappearance of the impact of the end-of-quarter financial management return table, releasing funds to flow into financial management products again; on the other hand, due to the low yield environment, the net value of financial management and debt funds continues to rise, and funds flow into non-banks under the demand for configuration.

In July, the year-on-year decline in M1 was larger than in June, reflecting the pressure on the growth of corporate demand deposits. The overall improvement in corporate operations, especially real estate companies, has not seen a turning point, and credit and social financing data also reflect that the effective demand of the real economy is weaker than before. However, under the background of preventing capital idling and the financial industry's "water squeezing", the relationship between credit volume and economic growth is gradually weakening, and it is more necessary to pay attention to the changes in credit structure; in addition, with the gradual implementation of new policies, macro policies continue to exert force and become more powerful, and there may still be room for future policies to add, and the recovery of effective demand and economic activity can be expected.

Since 2024, the market of the banking sector has been driven by three factors: first, the spread of the dividend rate selection logic within the sector, and the high dividend strategy has spread from state-owned banks to small and medium banks; second, the relaxation of real estate policies; third, the market's expectation for the slowdown of the decline in the net interest rate difference of banks and the expectation that the basic situation will bottom out. Looking forward, the banking sector needs to test the effectiveness of previous policies and the trend of the basic situation in the future.

Monthly economic and financial data both point to a slow economic recovery, insufficient effective financing demand from the entity, and low activity of funds. Under the background of insufficient effective demand, the overall expansion of bank scale has slowed down; the interest rate on the asset side still has downward pressure, and the interest rate difference is still under pressure; however, considering the accelerated improvement of deposit costs, the decline in the interest rate difference for the whole year of 2024 is expected to narrow year-on-year; under the situation of shrinking volume and reducing price, it is difficult to improve the short-term performance growth of banks. However, under the current policy of caring for bank interest rate differences and optimizing real estate policies and local debt, the pressure on non-performing assets in key areas has improved on the margin, and the probability of the industry's interest rate difference and performance exceeding expectations to decline is low.

Under the downward trend of the interest rate center, it is expected that the pressure of asset shortage will continue, and the allocation value of high dividend dividend assets will be long-term optimistic. Dividend stability and sustainability are strong; and under the background of passive fund expansion and guiding medium and long-term funds into the market, there is strong support on the capital side. In recent years, the valuation within the listed banking sector has fully converged, and the leading performance of small and medium banks' valuation compared to the sector does not have a significant premium, and short-term attention can be paid to the valuation repair opportunities of banks with certain performance.