Core Viewpoint - The article discusses the slowdown in credit expansion in October 2025, highlighting insufficient demand and the impact of seasonal factors on loan growth, with a focus on the performance of various loan categories and monetary aggregates [3][4][9]. Group 1: Credit Expansion and Loan Data - In October, new RMB loans amounted to 220 billion, a year-on-year decrease of 280 billion, aligning with the lower end of predictions and below the consensus forecast of 460 billion [3][7]. - Cumulative new RMB loans since the beginning of the year reached 15 trillion, a year-on-year decrease of 1.6 trillion, indicating a weak credit environment in the second half of the year [4]. - The corporate loan segment saw new loans of 350 billion in October, a year-on-year increase of 220 billion, with significant contributions from bill financing [5]. Group 2: Monetary Aggregates - M2 growth was recorded at 8.2%, a decrease of 0.2 percentage points from the end of September, while M1 growth was at 6.2%, down 1 percentage point [10]. - The total social financing in October was 815 billion, a year-on-year decrease of 597 billion, with a growth rate of 8.5%, continuing a downward trend since August [9]. Group 3: Residential Loan Trends - Residential loans showed a seasonal decline, with a net decrease of 360 billion in October, a year-on-year drop of 520 billion, reflecting weak consumer demand and economic conditions [8]. - The share of residential loans in total new credit was 4.9%, significantly lower than the previous year's 12.7%, indicating a strong deleveraging trend among households [8].

Investment Rating - The report indicates a cautious investment outlook for the financial sector, highlighting a decrease in loan demand and potential liquidity pressures on banks [1][6]. Core Insights - The report emphasizes that the overall loan demand remains insufficient, particularly in medium to long-term corporate and retail loans, which are crucial indicators of real economic demand [1][2][8]. - Social financing growth is primarily driven by government bond issuance rather than credit growth, indicating a shift in leverage dynamics towards government projects that typically have longer return cycles [4][5]. - The phenomenon of financial disintermediation is noted, where funds are moving from traditional banking systems to other channels, increasing liquidity pressure on banks and weakening the transmission effect of monetary policy [7][12]. Summary by Sections Loan Demand and Credit Growth - In May, new loans increased by 620 billion, falling short of market expectations and reflecting a year-on-year decrease in both corporate and retail loans [2][3]. - The decline in short-term loans is attributed to reduced promotional efforts by banks, while medium to long-term loans show slight improvement due to lower mortgage rates [9][8]. Social Financing and Government Bonds - Social financing increased by over 220 billion year-on-year, with government bonds contributing more than 230 billion, indicating a reliance on government debt for financing rather than private sector credit [4][5]. - The structure of social financing is shifting towards government bonds, which typically fund projects that do not yield immediate returns, leading to a lag between financial data and real economic performance [4][5]. Banking Sector and Liquidity - Banks are experiencing significant liability pressure, relying on government-backed projects for stability, while credit demand in sectors like wholesale and manufacturing has not fully recovered [6][1]. - Future liquidity will be influenced by fiscal policies and the progress of large projects, necessitating close monitoring of financial disintermediation trends [6][7]. Financial Disintermediation - Financial disintermediation is occurring gradually, driven by the comparative pricing of financial products rather than strict regulatory constraints, leading to a slow outflow of deposits from banks [12][11]. - The trend is expected to continue, with asset management institutions increasingly focusing on bond allocations as traditional banking faces challenges in retaining deposits [14][15]. Market Indicators: M1 and M2 - M1 growth of 2.3% indicates a recovery, primarily due to increased corporate reserves, while M2 growth remains stable at 7.9% [10][11]. - The changes in M1 and M2 reflect underlying economic conditions, with capital market performance significantly influencing deposit trends in large banks [18][11].