China Galaxy Securities: Financing restructuring, credit demand weaker than the same period last year

The Zhitong Finance App learned that China Galaxy Securities released a research report saying that the social finance growth rate declined for 4 consecutive months in June. Financing restructuring has become a long-term trend, and the phenomenon of using debt to replace loans and bill impulses still exists. Demand for loans from residents and businesses was weaker than in the same period last year. The M1-M2 scissor gap widened month-on-month, and the degree of capital activation declined. The bank continues to be optimistic about the value of dividends in the banking sector and preferred opportunities for individual stocks, and maintains recommended ratings.

The main views of China Galaxy Securities are as follows:

The growth rate of social finance continues to slow, and structural adjustment is a long-term trend

Social finance added 3.36 trillion yuan in June, a year-on-year decrease of 860.6 billion yuan; by the end of June, social finance stocks were +7.40% year-on-year, down 0.26 pct from the previous month, and the growth rate declined for 4 consecutive months. This month, social finance mainly relied on government debt and corporate bond financing support, but credit demand remained weak, and the diversion effect of corporate bonds on credit continued. According to the press conference of the State Information Office, changes in the financing structure may be long-term and trending, reflecting China's deep economic restructuring and transformation of economic growth momentum between old and new, as well as the dynamic adaptation of the financial system and the continued deepening of financial supply-side structural reforms.

Government bonds continue to support social finance, and the phenomenon of using bonds to replace loans and bill impulses still exists

In June, 1.77 trillion yuan of loans were added, a year-on-year decrease of 595 billion yuan; government bonds of 768.3 billion yuan were added, a month-on-month decrease and a year-on-year decrease of 582.5 billion yuan, mainly affected by the high base. However, judging from the actual issuance situation, the total amount of government bonds issued in June was 2.49 trillion yuan, which is still at a high level. Corporate debt increased by 401.2 billion yuan, an increase of 159 billion yuan over the previous year, and domestic stock financing for non-financial enterprises increased by 62.8 billion yuan, an increase of 42.5 billion yuan over the previous year. Off-balance sheet financing decreased by 134.4 billion yuan, a year-on-year decrease of 14 billion yuan. Among them, undiscounted bank acceptance notes decreased by 108.4 billion yuan, a year-on-year decrease of 81.6 billion yuan. More note discounts are converted into in-statement credit increments.

Demand for loans from residents and businesses was weaker than in the same period last year

At the end of June, financial institutions' RMB loan balances were +5.2% year-on-year, up from -0.3 pct last month. In June alone, additional loans of RMB 1.61 trillion were added from financial institutions, up from May but decreased by 630 billion yuan over the same period last year. Residents' demand for credit continues to be hampered by weak demand for consumption and home purchases, weak willingness to increase leverage, and it is not ruled out that falling interest rates on deposits lead to early mortgage payments. In June, residential loans increased by 264.6 billion yuan, a year-on-year decrease of 333 billion yuan; of these, short-term loans increased by 106.1 billion yuan, a year-on-year decrease of 156 billion yuan; medium- and long-term loans increased by 158.4 billion yuan, a year-on-year decrease of 176.9 billion yuan. Corporate loans increased by 1.5 trillion yuan, a year-on-year decrease of 270 billion yuan. Note financing is still supporting the increase in corporate loans. In June, it increased by 114.4 billion yuan, an increase of 525.3 billion yuan over the previous year. Note impulse showed that demand for credit was weak, but it was less intense than in May; medium- and long-term loans increased by 560 billion yuan, a decrease of 450 billion yuan over the previous year, and an increase of 820 billion yuan in short-term loans, an increase of 340 billion yuan over the previous year. Insufficient demand affects companies' capital expenditure and willingness to expand production.

The degree of capital activation declined sequentially, and the contribution of fiscal and non-bank deposits declined

In June, M1 and M2 were +4% and +8%, respectively, and the M1-M2 scissors difference was -4%, an increase of 0.9 pct month-on-month. At the end of June, financial institutions' RMB deposits were +8.2% year-on-year, and the growth rate was -0.5pct month-on-month. In June alone, financial institutions' RMB deposits increased by 1.99 trillion yuan, a year-on-year decrease of 1.22 trillion yuan. Specifically, residents' deposits increased by 1.95 trillion yuan, a year-on-year decrease of 520 billion yuan, which is expected to be affected by factors such as moving deposits or early repayment of mortgages. Corporate deposits increased by 1.94 trillion yuan, an increase of 162.7 billion yuan over the previous year; fiscal deposits decreased by 938.5 billion yuan, an increase of 118.5 billion yuan over the same period last year. At the same time, non-bank deposits decreased by 990 billion yuan, an increase of 470 billion yuan over the same period last year.

Risk Alerts

The economy falls short of expectations; risk of deteriorating asset quality; risk of falling interest rates and pressure on NIM; risk of weakening demand due to tariff shocks.