Investment Rating - Industry Rating: Outperform the Market (Maintain Rating) [4] Core Insights - The trend of credit "balance sheet reduction" is accelerating, with significant changes in total volume, structure, institutions, and pace observed in the first five months of the year [9][18] - The effective credit demand remains weak, leading to a strong policy-driven effect on credit issuance, particularly among small and medium-sized banks [9][10] - The loan interest rate decline has significantly slowed down, indicating an improvement in the supply-demand relationship for credit [14][18] Summary by Sections 1. Characteristics of Credit Issuance This Year - The total amount of new loans in Q1 was nearly 10 trillion, with a year-on-year increase, but the monthly new loans in April and May hit historical lows [9][10] - The structure of credit issuance shows a rise in short-term loans for enterprises while long-term loans are declining, indicating a credit rush phenomenon during the "opening red" period [9][10] - Policy banks are expected to maintain a higher loan issuance rate compared to commercial banks, which are experiencing a more pronounced reduction in credit [10][12] 2. Characteristics of Deposit Growth This Year - M2 growth remains high at 8%, but signs of fund circulation are emerging, with banks engaging in high-cost interbank borrowing while offering low rates for repurchase agreements [19][20] - The deposit generation rate from loans is weak, with a historical low gap between corporate loans and deposits [25][26] - The average duration of deposits is declining as banks adjust their liability structures to mitigate interest rate risks [26][29] 3. Market Implications - The ongoing trend of credit "balance sheet reduction" suggests a friendly monetary environment, with low funding rates expected to persist [30][33] - The emergence of fund circulation phenomena necessitates attention to potential marginal adjustments in monetary policy by the central bank [30][29] - The anticipated limited downward adjustment in LPR and loan rates in the second half of the year may lead to an increase in loan spreads despite a decrease in LPR [33][30]