TSF Beats Expectations, but Weak Lending and Lower Pricing Continue to Pressure Bank NIMs
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TSF Beats Expectations, but Weak Lending and Lower Pricing Continue to Pressure Bank NIMs
Government and corporate bond financing drove July new TSF to Rmb1.41tn, exceeding expectations, but new RMB loans posted the largest decline on record; JPMorgan therefore favors large state-owned banks with stronger loan growth and superior investment income.
- July new TSF was Rmb1.41tn, above JPMorgan's expectation of Rmb1.27tn and the market expectation of Rmb1.09tn, mainly driven by government and corporate bond financing.
- New RMB loans declined by Rmb340bn, substantially weaker than expected; both retail loans and corporate loans excluding bills contracted.
- A higher share of discounted bills and declining loan rates will keep bank asset yields and net interest margins under pressure.
- Deposit growth remains higher than loan growth, while the share of demand deposits has improved; future repricing of time deposits may ease part of the funding-cost pressure.
- The report favors China's Big Four banks, with Bank of China - H and China Construction Bank - H as top picks.
Report interpretation
Overview
JPMorgan believes China's July credit data were mixed. New total social financing was significantly supported by government and corporate bond financing and exceeded expectations, but bank lending itself was clearly weak, reflecting still-insufficient demand for retail, mortgage, and corporate financing. The report expects declining asset yields to increase net interest margin pressure, although lower deposit costs can provide a partial offset.
Core views
Bond financing maintained relatively rapid growth, indicating that loan data do not fully reflect overall financing support; however, weak loan volumes, increased low-yield discounted bills, and deteriorating loan pricing are negative for both bank loan growth and asset-side returns. The report believes that, amid weak demand and pressure on asset prices, large state-owned banks have relative advantages due to stronger loan growth and higher investment income generated through AIC subsidiaries.
Analysis framework
The report uses July total social financing, loan and deposit breakdowns, money supply, financing structure, and central bank loan-pricing data as its main analytical framework, comparing actual data with JPMorgan and market expectations and assessing their impact on loan demand, bank asset yields, deposit costs, and net interest margins.
Methodology notes
Compare the scale and growth of total social financing, loans, government bond financing, and corporate bond financing
Used to distinguish the contributions of bank lending and bond financing to overall credit expansion and assess whether loan data understate overall financing support.
The relative impact of changes in asset yields and deposit costs
Assesses directional pressure on bank net interest margins through loan pricing, the share of discounted bills, the proportion of demand deposits, and time-deposit repricing.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Bank of China - H（3988.HK）One of the report's top industry picks, rated Overweight
- Strengths
- As a large state-owned bank, the report believes it has relatively stronger loan growth and higher investment income potential.
- Weaknesses
- It still faces industry-wide weak loan demand, declining asset yields, and net interest margin pressure.
- Comparison
- Compared with banks with weaker loan growth or weaker wealth-management capabilities, large state-owned banks have relative advantages in the current environment.
- Risks
- Persistently weak macro credit demand, further declines in loan pricing, and pressure on the quality of existing assets.
- China Construction Bank - H（0939.HK）One of the report's top industry picks, rated Overweight
- Strengths
- The report favors its scale, loan growth, and investment income advantages as a large state-owned bank.
- Weaknesses
- Industry-wide deterioration in loan mix and pressure on asset yields may still affect earnings.
- Comparison
- Compared with other banks, the report believes the Big Four are more defensive in an environment of weak loan demand.
- Risks
- Continued NIM compression, adjustments in real-estate and related financing, and a weaker-than-expected macro demand recovery.
- Agricultural Bank of China - H（1288.HK）Covered by the report and rated Overweight
- Strengths
- It is among the report's favored Big Four banks and has relatively strong loan-growth and investment-income attributes.
- Weaknesses
- It cannot fully avoid the impact of industry-wide declining loan pricing and insufficient retail demand.
- Comparison
- Relative to small and mid-sized banks, large state-owned banks have stronger financing and loan-growth capabilities.
- Risks
- Persistently weak loan demand, a rising share of low-yield assets, and pressure on net interest margins.
- Industrial and Commercial Bank of China - H（1398.HK）Covered by the report and rated Overweight
- Strengths
- As one of the Big Four banks, it has the relative advantages in loan growth and investment income emphasized by the report.
- Weaknesses
- Low industry-wide loan growth and weakening loan mix will constrain asset-side returns.
- Comparison
- The report generally favors the Big Four over banks with weaker loan growth.
- Risks
- Continued declines in loan rates, insufficient financing demand, and changes in the credit environment.
Key data
- July new total social financingRmb1.41tnAbove JPMorgan's expectation of Rmb1.27tn and the market expectation of Rmb1.09tn.
- July new RMB loans-Rmb340bnThe largest decline on record, below JPMorgan's expectation of +Rmb81bn.
- Government bond financingRmb1.32tnRepresented approximately 94% of new TSF and was the main source of the upside surprise.
- Corporate bond financingRmb452bnIncreased 13% month on month and 65% year on year.
- Loan balance growth5.1% YoYBelow June's 5.2%, reflecting continued weak loan expansion.
- Deposit growth8.1% YoYSlightly below June's 8.2%, but notably higher than loan growth.
- New retail loans-Rmb460bnShort-term loans declined by Rmb340bn and medium- to long-term loans declined by Rmb120bn.
- New corporate loans excluding bills-Rmb480bnDiscounted bills increased by Rmb376bn during the same period, worsening the loan mix.
- 2Q26 weighted average loan ratedown 18bp QoQThe loan-pricing trend weakened versus 1Q26.
- Demand deposit share27.2%Improved month on month in June, positively affecting bank deposit costs.
Impact & implications
For the banking sector, improved bond financing supports the macro financing environment but cannot offset pressure on bank assets from insufficient loan demand. A higher weighting of low-yield discounted bills and declining rates on general and corporate loans will weaken loan portfolio yields; faster deposit growth, an improved demand-deposit share, and time-deposit repricing will help lower funding costs. Relatively speaking, the report believes the Big Four banks are better positioned to withstand the current environment.
Risks
- Retail, mortgage, and corporate financing demand remains below expectations, placing further pressure on loan volumes.
- A continued increase in the share of discounted bills or further declines in loan rates could result in persistent compression of asset yields and net interest margins.
- Greater adjustments in real estate, local government financing vehicles, and infrastructure-related financing could pressure credit demand and bank asset quality.
- Improved bond financing may fail to effectively transmit into bank lending or real-economy financing demand.
What to watch
- Subsequent changes in new RMB loans and the retail and corporate loan breakdowns.
- Whether government and corporate bond financing can continue to support total social financing.
- Subsequent trends in loan pricing, the share of discounted bills, and general loan rates.
- The extent to which deposit growth, the share of demand deposits, and time-deposit repricing improve funding costs.
- The sustainability of non-bank deposit inflows, wealth-management product issuance, and capital-market trading activity.