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Credit growth in July remained weak, and credit in the social financing sector showed a rare negative growth, which attracted market attention.

Data from the central bank showed that in the first seven months of 2024, the cumulative increase in social financing scale was 18.87 trillion yuan, 3.22 trillion yuan less than the same period last year. Among them, RMB loans issued to the real economy increased by 12.38 trillion yuan, 3.27 trillion yuan less than the same period last year.

In July alone, the increase in social financing was 770.8 billion yuan, which was a significant decrease from 329.99 billion yuan in June, but higher than 536.6 billion yuan in July last year, an increase of 234.2 billion yuan year-on-year.

RMB loans in the social financing scope were one of the main drag items, with an increase of -76.7 billion yuan, the first negative growth since July 2005, and a significant decrease of 113.1 billion yuan year-on-year.

Although July is a low credit month, some market analysts tend to believe that the credit data for July is not optimistic. Both companies and individuals have become more cautious in borrowing money, and their confidence in the future economy is still insufficient.

An analyst explained to reporters that the small increase in credit in July was in line with traditional rules. In addition, some financial institutions still had the "rush volume" phenomenon in June, which further led to the small increase in credit in July.

Credit drags down social financing

In terms of growth, the cumulative increase in social financing scale in the first seven months of 2024 was 18.87 trillion yuan, 3.22 trillion yuan less than the same period last year. Among them, under social financing, RMB loans issued to the real economy increased by 12.38 trillion yuan, 3.27 trillion yuan less than the same period last year.

In the incremental structure, government bonds and corporate bonds are the main contributors. Data shows that in the first seven months, corporate bonds net financing was 1.61 trillion yuan, 311.6 billion yuan more than the same period last year; government bonds net financing was 4.03 trillion yuan, 238 billion yuan more than the same period last year.

According to statistics, the increase in social financing in July alone was 770.8 billion yuan, which was a significant decrease from 329.99 billion yuan in June, but higher than 536.6 billion yuan in July last year, and basically the same as 778.5 billion yuan in July 2022.

Wen Bin, chief economist of China Minsheng Bank, said that since July, the pace of government bond issuance has slowed marginally, but the year-on-year increase has expanded, and the scale of corporate bond net financing has also increased. Based on the low base of the same period last year, the scale of new social financing in July turned to year-on-year increase.

CITIC SecuritiesChief Economist Mingming said that in July, China's government bond net financing was about 700 billion yuan, an increase of nearly 300 billion yuan year-on-year, which strongly supported the steady growth of social financing. Recently, the issuance of special bonds has accelerated, and the issuance and use of ultra-long-term special government bonds have also been accelerated. The subsequent issuance of government bonds has accelerated, which is expected to continue to support social financing.

RMB loans are the main drag.Huaxi SecuritiesChief Macro Analyst Xiao Jinchuan believes that July is traditionally a low season for credit, and a month-on-month decrease in loans is normal. The median of new loans (social financing caliber) in July in the past 10 years was 698.8 billion yuan, 58% lower than in June. In July last year, new loans (social financing caliber) were only 36.4 billion yuan. In addition, in the second quarter of this year, manual interest payments were cracked down, and some loans involving idle operations may be reduced accordingly. However, banks still have a demand for volume at the end of the quarter, and July after the cross-season may be more susceptible to reductions, dragging down the performance of new loans.

Liu Tao, a senior researcher at Guangkai Chief Industry Research Institute, also pointed out that based on past experience, the first months of the fourth, seventh and tenth quarters are usually months with relatively low new credit and social financing. Judging from the situation in the second quarter, since the new RMB loans in June at the end of the quarter were 2.13 trillion yuan, far exceeding the 730 billion yuan and 950 billion yuan in April and May, the new credit projects could not keep up in the short term, which led to a decrease in new loans in July.

Wen Bin believes that credit in July has obvious seasonal characteristics and many disruptive factors. There is no need to pay too much attention to the data for a single month. Instead, we should pay more attention to the overall credit situation, long-term credit trends, and the matching of credit supply and demand.

The combination of multiple factors leads to insufficient demand for credit

In addition to seasonal factors, the credit growth rate turned negative in July due to the influence of multiple factors such as early loan repayment, bill rush, and "water squeeze" in financial data. In July, RMB loans increased by 260 billion yuan, a year-on-year increase of 85.9 billion yuan, and the growth rate of RMB loan financing turned negative.

From a structural perspective, in July, loans to enterprises and public institutions increased by 130 billion yuan, a decrease of 107.8 billion yuan year-on-year. Among them, the increments of short-term loans, medium- and long-term loans, and bill financing were -550 billion yuan, 130 billion yuan, and 558.6 billion yuan, respectively, with year-on-year changes of -171.5 billion yuan, -141.2 billion yuan, and 198.9 billion yuan, respectively.

On the resident side, household loans decreased by 210 billion yuan in July, a decrease of 9.3 billion yuan year-on-year. Among them, the increase in short-term loans and medium- and long-term loans of residents was -215.6 billion yuan and 10 billion yuan, respectively, with a year-on-year change of -82.1 billion yuan and 77.2 billion yuan, respectively. The decline in short-term loans of residents was large, while the increase in medium- and long-term loans was limited but improved year-on-year.

Liu Tao believes that the new scale of short-term loans for residents and enterprises is negative, and the factor leading to the decline in credit may be more due to insufficient demand than seasonal factors. Residents' weak expectations for income and employment may have affected residents' consumption and housing demand during the period.

The central bank's questionnaire survey report on urban depositors in the second quarter of 2024 showed that urban depositors' confidence in future income and employment expectations in the second quarter fell by 1.4 and 1.8 percentage points respectively from the first quarter, the second lowest since 2010 (the lowest value was in the fourth quarter of 2022). At the same time, the proportion of residents who tend to "save more" is still at a high level of 61.5%. In addition, the proportion of residents who expect to increase their housing purchase expenses in the next three months has dropped by 0.4 percentage points to 14.6%.

"We cannot rule out the possibility that some residents may repay their mortgages ahead of schedule due to the inability to flexibly lower mortgage interest rates and the general decline in investment and financial management yields at this stage," said Liu Tao.

Xiao Jinchuan also believes that the interest rates on existing mortgages are significantly higher than those on new mortgages, which may encourage residents to continue to repay their loans in advance.

In addition, the growth of corporate bond and bill financing in July is also worth noting. The scale of bill financing increased by 558.6 billion yuan in July, supporting the increase in RMB loans in that month.

On August 14, interest rates on bills of all maturities fell across the board, with the decline being even greater for bills maturing within the year. Among them, the rediscount rate for treasury bills due in January next year fell to 0.82%, and the rediscount rate for six-month treasury bills due in February next year fell to 0.99%. The interest rates for bills maturing next year all fell below 1.0%.

Since the beginning of this year, the 6-month bill discount rate has fallen from about 2% to the current level of nearly 1%. As the bill discount rate falls, the cost of bill financing is reduced accordingly, and some small and medium-sized enterprises choose to turn to bill financing to meet their short-term funding needs.

Liu Tao said that the growth in the scale of bill financing should not be simply understood as a deliberate "increase in volume" by financial institutions. There is a certain substitution and complementary relationship between it and corporate short-term credit.

But Mingming believes that although bills play an important role in financing small and micro enterprises, combined with the data of undiscounted acceptance bills, it cannot be ruled out that banks still have certain "impulsive" behavior.

The influencing factors of credit "water squeeze" still exist. After some of the inflated deposits and loans are squeezed out, financial data will show a certain decline.

In June this year, Pan Gongsheng, governor of the People's Bank of China, said that some unreasonable market behaviors that can easily undermine the transmission of monetary policy will be more regulated, including promoting balanced credit supply, managing and preventing idle funds, and rectifying manual interest payments.

Liu Tao believes that in the short term, these measures to regulate market behavior will have a "water-squeezing" effect on financial data. But in the long run, it will help balance the pace of credit growth, ease resource allocation distortions, and reduce capital arbitrage.

In July, the scale of new corporate bonds was 202.8 billion yuan, a significant increase from 129 billion yuan in the same period last year, continuing the rapid recovery momentum since June. Market analysts believe that this may also replace part of the current corporate loan needs to a certain extent, achieving the regulatory purpose of "reasonably grasping the relationship between the two largest financing markets, bonds and credit."

Low to medium credit growth will become the new normal

The central bank recently proposed in its second quarter monetary policy implementation report that "while preventing funds from being idle and stagnant, we will support financial institutions in accordance with market-oriented and rule-of-law principles, deeply tap into effective credit demand, and accelerate the transformation of reserve projects."

Since the beginning of this year, the central bank has repeatedly released policy signals: the focus of future macroeconomic policies will shift from increasing supply to increasing consumer demand and promoting supply-demand balance. The key is to activate the stock and smooth the circulation.

Medium to low credit growth will become the new normal.Zheshang SecuritiesChief Economist Li Chao said that in the medium and long term, the gradual slowdown in credit growth corresponds to the transformation and upgrading of the economic structure, which has led to a "gear shift" in credit demand and a benign substitution of direct financing. In the process of revitalizing the stock of funds and increasing and decreasing the incremental funds, the reasonable evaluation of financial support in the future can pay more attention to the effectiveness of interest rate reduction, as well as the intensity of financial support in key areas such as scientific and technological innovation, green development, and small and medium-sized enterprises.

Liu Tao suggested that as the Fed may turn to interest rate cuts at the end of the third quarter, my country will have more room to cut the reserve requirement ratio and interest rates, creating more suitable policy conditions for credit recovery. At the same time, the central bank can also create a suitable liquidity environment through the flexible combination of long-, medium- and short-term tools such as treasury bond trading, repo transactions and spot transactions in the open market.

(This article comes from China Business Network)