July social financing improved mainly on government and corporate bonds, while bank credit demand remained weak

Overview

Goldman Sachs believes that July 2026 social financing data again confirm that insufficient credit demand remains the core constraint facing China's banking sector. Although stronger government and corporate bond issuance improved social financing, household and corporate borrowing demand remained weak, and loan growth continued to slow.

Core views

The improvement in new social financing came more from direct financing and government bond issuance than from bank credit expansion. Weak household borrowing and demand for medium- and long-term corporate loans will continue to pressure loan growth and asset yields. Slower balance-sheet expansion supports capital preservation and risk-weighted asset management, but migration of deposits into investment products may limit further declines in funding costs. Banks' earnings resilience will depend more on the recovery of fee income, bond portfolio management, and credit-cost control.

Analysis framework

The report assesses credit demand, financing structure, funding costs, and earnings pressure in China's banking sector through July social financing, RMB loans, the composition of household and corporate loans, deposit structure, and money-circulation-related indicators.

Methodology notes

• Macro Credit AnalysisSocial Financing and Loan Structure Analysis

  Assess the bank credit cycle using changes in the aggregate volume and composition of new social financing, loans, and deposits.

  Break down changes in government bonds, corporate bonds, RMB loans, household loans, medium- and long-term corporate loans, and bill financing to identify the main sources of financing expansion and the strength of credit demand in the real economy.

Asset mapping & comparison

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

• China Construction Bank

  A large Chinese bank that benefits from the report's relative preference for large banks.

  Strengths

  Relatively strong scale, capital preservation capability, and risk-weighted asset management capability; the report states that both its A-shares and H-shares are rated Buy.

  Weaknesses

  Weak loan demand and declining asset yields will still affect earnings growth.

  Comparison

  Compared with banks more sensitive to the credit cycle, large banks have greater advantages in capital and operating resilience.

  Risks

  A weaker-than-expected recovery in household credit, slower net interest margin improvement, and deterioration in retail asset quality.

• Bank of China

  A large Chinese bank that benefits from the report's relative preference for large banks.

  Strengths

  The report states that Bank of China(A) is rated Buy, and large banks have a strong foundation for earnings resilience.

  Weaknesses

  Sector-wide insufficient credit demand continues to constrain asset-side growth.

  Comparison

  The report favors large banks rather than banks driven by short-term credit expansion.

  Risks

  Deposit migration constraining declines in funding costs, weak recovery in fee income, and rising credit costs.

Key data

• New social financing in JulyRMB1.4 trillionUp RMB0.3 trillion from RMB1.1 trillion in July 2025.
• New RMB loans in Julynegative RMB590 billionNegative RMB430 billion in July 2025, with credit extension weakening further.
• Outstanding social financing growth7.4%Unchanged from June 2026.
• Outstanding loan growth5.1%Below 5.2% in June 2026.
• New social financing in the first seven months of 2026RMB22.2 trillionDown 7.3% year-on-year, compared with RMB24.0 trillion in the first seven months of 2025.
• New loans in the first seven months of 2026RMB10.4 trillionDown 19.1% year-on-year, compared with RMB12.8 trillion in the first seven months of 2025.
• Household loans in Julynegative RMB460 billionShort-term consumer loans decreased by RMB340 billion, and mortgage loans decreased by RMB120 billion.
• Corporate loans in JulyRMB130 billionMedium- and long-term corporate loans decreased by RMB226 billion, while bill financing increased by RMB376 billion.
• Deposits in Julynegative RMB8 billionHousehold deposits decreased by RMB641 billion, while deposits of non-bank financial institutions increased by RMB823 billion.

Impact & implications

Insufficient credit demand means that bank loan growth and asset yields remain under pressure. Although funding costs continue to decline, the migration of household deposits into investment products may reduce room for further cost reductions, slowing net interest margin recovery. Relatively speaking, large banks with stronger capital positions and operating resilience are more defensive; retail asset quality remains an important area to monitor.

Risks

• Continued weakness in household consumption and mortgage demand.
• No meaningful recovery in corporate capital expenditure and medium- and long-term financing demand.
• Migration of deposits into investment products, limiting banks' ability to further reduce funding costs.
• Net interest margin recovery that is slower than expected.
• Deterioration in retail loan asset quality and rising credit costs.
• Growth in government bonds and direct financing failing to translate into improved bank credit demand.

What to watch

• Monthly changes in household short-term consumer loans and mortgage loans.
• Changes in the composition of medium- and long-term corporate loans and bill financing.
• The contribution of government and corporate bond issuance to incremental social financing.
• Trends in deposit migration between households and non-bank financial institutions.
• Changes in money-circulation indicators and in M1, M2, and social financing growth.
• Fee income, bond investment income, net interest margins, and retail non-performing loan performance at large banks.