June 13, 2025 10:08 AM GMT China Economics | Asia Pacific Strong TSF, Imbalanced Structure Key Takeaways Broad credit YoY remained strong on fiscal front-loading...New TSF came in at Rmb2,287bn (Consensus: Rmb2,330bn), with YoY of outstanding credit staying unchanged at 9%. Front-loaded govt. bond issuance has remained a key driver, led by special long-term treasury bonds and LGSB to support infrastructure capex. That said, private sector credit remains subdued, with a continued net decline in short- term h ...

Investment Rating - The report indicates a cautious outlook on the industry, highlighting the need for close monitoring of credit demand and economic recovery trends. Core Insights - The growth of social financing in February was primarily driven by government bonds, accounting for 70% of the total, reflecting the government's fiscal support for the economy, while RMB loans were weak at 650 billion, indicating insufficient internal momentum in the real economy [2][5][18] - Despite an increase in deposits year-on-year, market liquidity remains tight, with a decline in M1 growth, suggesting that the increase in deposits has not effectively translated into liquidity for the real economy [2][4][13] - The credit structure shows divergence, with corporate loans experiencing positive growth while long-term loans to households decreased, linked to changes in commodity housing sales, indicating insufficient recovery in consumption [2][6][7] Summary by Sections Social Financing and Credit Data - In February, social financing data was 2.2 trillion, a year-on-year increase of 700 billion, but still below market expectations of 3 trillion. Total loans were 1 trillion, also below the expected 1.2 trillion, primarily due to strong government bond issuance [3][18] - Government bonds and infrastructure loans contributed significantly to social financing growth, with a notable trend of front-loading government bond issuance [5][18] Deposit and Liquidity Analysis - February saw a year-on-year increase in deposits of 3.5 trillion, totaling 4.4 trillion, closely related to the normal cash flow post-Spring Festival. However, M1 growth declined from 0.4% to 0.1% due to cash returning to bank accounts [11][13] - The decline in deposit rates has intensified financial disintermediation, with funds flowing towards fixed-income products, leading to a significant increase in wealth management products [12][13] Credit Structure and Banking Behavior - The credit structure in the first quarter shows significant differences between large and small banks, with large banks relying on bill discounting for growth while small banks benefited from stronger credit demand [8][9][10] - The role of bill discounting in overall credit growth has been substantial, with large banks being the main players, indicating a less than ideal credit demand environment [10][18] - Small banks have maintained a robust deposit base, actively purchasing bonds, while large banks face liquidity pressures, leading to bond sell-offs [16][15] Future Outlook - The current tight liquidity situation is primarily due to large banks' funding shortages, with expectations of potential reserve requirement ratio cuts in the next 1-2 months to alleviate these pressures [17][18]