May Aggregate Social Financing and Loan Growth Hit New Lows; Household Sector Continues Deleveraging

Overview

This report reviews China's financial and credit data for May 2026. The core conclusion is that credit expansion has significantly slowed, with new aggregate social financing (AF) and RMB loan balance growth hitting historic lows. The data reflects severe insufficiency in credit demand from the real economy, particularly the household sector, while government bond issuance pace also lagged behind the same period last year. Facing risks of idle funds caused by interbank market rates remaining persistently below policy rates, the People's Bank of China (PBoC) recently took measures to withdraw liquidity, aiming to restore the signaling function of the interest rate corridor and curb irrational declines in bond yields. Nomura believes this operation does not imply reserving space for future rate cuts or RRR cuts; instead, it confirms the baseline judgment that monetary policy will remain stable within the year.

Core views

Both total volume and structure of credit weakened. New aggregate social financing in May amounted to 2.03 trillion yuan. Although slightly higher than some market consensus, it represented a year-on-year decrease, causing stock social financing growth to further slide from 7.8% in April to 7.7%, hitting a record low. Newly issued RMB loans and net financing from government bonds were the main drag. New RMB loans were only 520 billion yuan, a significant year-on-year decrease from 620 billion yuan in the same period last year, pushing stock RMB loan growth to a historic low of 5.5%. Structurally, corporate sector loans appeared to grow year-on-year to 640 billion yuan, but bill financing accounted for as much as 557 billion yuan (compared to only 750 billion yuan in the same period last year), while medium-to-long-term loans, representing true investment willingness, plummeted to -20 billion yuan. This indicates that actual corporate credit demand is far weaker than headline data suggests, with bill financing mainly serving to pad figures. Contraction in household sector credit was particularly severe. New household loans in May were -141 billion yuan, with short-term and medium-to-long-term loans decreasing by 84 billion yuan and 57 billion yuan respectively. This sustained negative growth reflects that the household sector is still repairing its balance sheet and deleveraging. Additionally, household deposits saw a rare negative growth of -110 billion yuan in May, marking the first time since 2015 that May recorded negative values. This shows household funds flowing into other assets or used for debt repayment, rather than staying within the banking system. Government bond issuance fell short of expectations. Net financing from government bonds in May was 1.22 trillion yuan, lower than the 1.46 trillion yuan in the same period last year. Nomura expects that as Beijing needs to support continuously shrinking fixed asset investment, government bond issuance is likely to accelerate in the coming months, which will help stabilize the momentum of credit expansion.

Analysis framework

Nomura's analytical logic follows the path of 'total volume observation - structural breakdown - policy attribution'. First, by comparing historical data and market expectations for new social financing and loans, it establishes the overall tone of 'credit growth hitting historic lows'. Second, it deeply breaks down credit structure, emphasizing the exclusion of bill financing to reveal true corporate demand, and the double negative growth of household short-term and long-term loans, thereby arguing the structural contradiction of insufficient domestic demand. Finally, it combines micro credit data with macro monetary policy operations to explain the counter-intuitive behavior of the PBOC withdrawing liquidity against the backdrop of weak credit demand. It points out that the core purpose is to prevent financial idle funds and bond market risks, rather than being a traditional tightening signal, thus deriving the policy conclusion of no rate cuts or RRR cuts within the year.

Methodology notes

• Macroeconomic framework

  Interest Rate Corridor and Idle Funds Analysis

  The research report analyzes the deviation between interbank interest rates (such as DR007) and policy rates (such as the 7-day reverse repo rate) to determine if there is idle funds circulation (i.e., funds circulating within the financial system without entering the real economy). When market rates persistently fall below policy rates, the central bank usually withdraws liquidity to restore the signaling function of the interest rate corridor.

• Industry/Industrial Analysis FrameworkVolume-Price Breakdown

  Bill Financing Exclusion Method in Credit Structure

  When analyzing corporate credit demand, the report notes that bill financing often has a volume-pushing nature and cannot truly reflect corporate investment and expansion willingness. Therefore, observing changes in medium-to-long-term loans after excluding bill financing allows for a more accurate measurement of the real financing demand of the real economy.

Key data

• New Aggregate Social Financing in May2.03 trillion yuanBelow market expectations, stock growth dropped to a historic low of 7.7%
• New RMB Loans in May520 billion yuanYear-on-year decrease, stock growth dropped to a historic low of 5.5%
• New Household Loans-141 billion yuanShort-term and medium-to-long-term loans both showed negative growth, reflecting continuous deleveraging
• Corporate Bill Financing557 billion yuanSignificant year-on-year increase, masking the weakness in actual corporate credit demand
• M1/M2 GrowthM1: 5.5%, M2: 8.6%M1 growth rebounded, M2 remained flat
• DR007 Average1.34%Below the 1.40% policy rate, triggering PBOC liquidity withdrawal

Impact & implications

For the macroeconomy, the continued weakening of credit data indicates that endogenous growth momentum remains insufficient, and balance sheet repair in the household and corporate sectors is still underway. For the bond market, the PBOC's measures to withdraw liquidity and curb idle funds will help stop the self-reinforcing downward trend of treasury bond yields, potentially increasing bond market volatility. Regarding policy expectations, investors should lower their expectations for rate cuts or RRR cuts within 2026; Nomura explicitly maintains a baseline judgment of no such easing actions. Future stabilization of credit will rely more on the acceleration of government bond issuance and its support for fixed asset investment.

Risks

• Acceleration of government bond issuance falls short of expectations, leading to continued deceleration in credit expansion.
• Prolonged deleveraging process in the household sector, suppressing consumption and investment recovery.
• If the risk of idle funds in the financial system is not effectively curbed, it may trigger further regulatory tightening.

What to watch

• The pace and scale of government bond issuance in the coming months.
• Trends in corporate medium-to-long-term loans after excluding bill financing.
• Whether interbank market rates (DR007) stabilize near the policy rate.
• Marginal changes in household deposits and loans to observe if deleveraging is nearing completion.