May Credit Continues to Weaken, Shifting Bank Investment Logic to Defense

Overview

This Goldman Sachs research report focuses on China’s banking sector, analyzing current credit conditions based on newly released May 2026 aggregate financing and loan data, and adjusting investment strategies accordingly. The central argument is that May’s credit data continued April’s weakness, with nearly all key indicators showing broad-based slowdown, and real-economy financing demand remaining subdued. Against this macro backdrop, the report contends that investing in bank stocks should pivot from prioritizing earnings-per-share growth to evaluating banks’ balance-sheet resilience. Accordingly, it reaffirms its Buy rating on Bank of Ningbo (BONB).

Core views

**May Credit Data Shows Broad-Based Weakness** In May 2026, new aggregate financing (TSF) amounted to RMB 2.0 trillion, down RMB 0.3 trillion year-on-year compared to RMB 2.3 trillion in the same period of 2025; new loans totaled RMB 0.5 trillion, down RMB 0.1 trillion year-on-year from RMB 0.6 trillion in 2025. The year-on-year growth rate of outstanding aggregate financing slowed from 7.8% in April to 7.7%, while outstanding loan growth decelerated from 5.6% to 5.5%. Almost all key metrics are trending downward, continuing the weak trend observed in April. **Loan Structure Reveals Lackluster Real Demand** Breaking down loan categories: - Retail loans declined by RMB 0.14 trillion month-over-month, reflecting sluggish performance. - Corporate loans increased by RMB 0.64 trillion, but the report specifically points out that nearly all of this growth came from bill financing rather than genuine short-term or medium-to-long-term loans needed by the real economy, underscoring persistently weak effective credit demand. **Deposit Shift Continues, But at Slower Pace** New deposits in May totaled RMB 1.7 trillion, down RMB 0.5 trillion year-on-year. Household and corporate deposits fell by RMB 0.13 trillion and RMB 0.03 trillion, respectively, while non-bank financial institution deposits surged by RMB 0.9 trillion. This indicates that the migration of deposits from households and enterprises toward non-bank channels persists, albeit at a reduced pace. M1 growth rebounded to 5.5% year-on-year from April’s 5.0%, while M2 growth remained steady at 8.6%. **Strategic Shift: From Growth to Defense** Amid ongoing credit weakness, the report explicitly argues that bank stock investment priorities should shift from chasing earnings-per-share (EPS) growth to assessing balance-sheet resilience. In an environment characterized by high macro uncertainty and insufficient credit demand, banks with stronger asset quality, more stable liability structures, and adequate provisions will be more attractive. **Reaffirmation of Buy Rating on Bank of Ningbo** Based on the aforementioned investment rationale, the report once again confirms its Buy rating for Bank of Ningbo (BONB). The report notes the current stock price at RMB 32.70 but does not specify a new target price.

Analysis framework

The report employs a typical analytical approach combining economic data monitoring with strategic shifts: 1. **Data-Driven**: First, examine the latest macro-financial data (aggregate financing, loans, deposits, M1/M2), comparing them to the previous month and the same period last year to quickly assess whether trends are improving or deteriorating. 2. **Structural Decomposition**: Beyond looking at overall totals, delve into the internal composition of loans (retail vs. corporate, bills vs. medium-to-long-term) to identify underlying drivers—such as the recent finding that corporate loan growth was largely driven by bill financing, revealing weak real-economy demand. 3. **Strategy Mapping**: Translate macro-level observations into concrete adjustments in investment strategy. Upon detecting persistent credit weakness, the report shifts the primary investment logic for bank stocks from “which ones grow fastest” to “which ones have more resilient balance sheets,” thereby informing individual stock ratings. 4. **Field Research Validation**: The report mentions that this trend aligns with findings from prior field visits (trip takeaways), demonstrating that its analysis is grounded not only in monthly data but also supported by earlier research.

Methodology notes

• Industry/sector analysis frameworkSupply-demand framework

  Demand Analysis

  By analyzing loan structure and distinguishing between growth in bill financing versus genuine medium-to-long-term loans, the report infers whether real-economy credit demand remains robust. Bill financing typically serves short-term working capital needs and does not reflect long-term capital expenditure requirements; thus, when loan growth is predominantly driven by bills, it suggests weak effective demand in the real economy.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Bank of Ningbo

  The report argues that, amid weak macro credit conditions, investment logic should pivot toward defensive balance sheets, and Bank of Ningbo meets these criteria, hence the reaffirmed Buy rating.

Key data

• New Aggregate Financing in MayRMB 2.0 trillionDown approximately RMB 0.3 trillion year-on-year
• New Loans in MayRMB 0.5 trillionDown RMB 0.1 trillion year-on-year
• Year-on-Year Growth Rate of Outstanding Aggregate Financing7.7%Lower than April’s 7.8%
• Year-on-Year Growth Rate of Outstanding Loans5.5%Lower than April’s 5.6%
• Proportion of Bill Financing in Corporate Loan GrowthVast MajorityIn May, corporate loans grew by RMB 0.64 trillion, but nearly all came from bill financing, indicating weak real-economy credit demand
• M1 Year-on-Year Growth Rate5.5%Higher than April’s 5.0%
• M2 Year-on-Year Growth Rate8.6%Unchanged from April
• New Deposits in MayRMB 1.7 trillionDown RMB 0.5 trillion year-on-year
• Increase in Non-Bank Financial Institution DepositsRMB 0.9 trillionIndicates deposit migration from households and enterprises toward non-banks, but at a slower pace

Impact & implications

The report concludes that sustained credit weakness challenges the traditional model of bank profitability driven by scale expansion. For the broader banking industry, investors must shift their focus from chasing rapid profit growth to evaluating banks’ ability to withstand pressure—assessing asset quality, liability stability, and resilience against macroeconomic risks. Banks with stronger balance sheets—characterized by ample provisions, low non-performing loan ratios, and robust core capital—are likely to hold a relative advantage in such an environment.

Risks

• Continued intensification of credit weakness could further weigh on bank earnings growth.
• Massive deposit shifts toward non-banks may increase banks’ liability cost pressures.