Shenwan Hongyuan: February Financial Data Review - Is the Optimization of the Credit Structure Sustainable?

Summary

Event: On March 13, the People’s Bank of China released financial data for February 2026. The year-over-year growth rate of the credit balance decreased by 0.1 percentage points to 6.0%, social financing stock remained flat at 8.2%, and M1 increased by 1.0 percentage point to 5.9%.

Core View: The sustainability of medium- and long-term corporate loans remains to be seen.

In February, the year-over-year improvement in medium- and long-term corporate loans may be due to two main factors: first, a more balanced pace of credit issuance in January; second, the low base effect created by early debt reduction efforts at the beginning of last year. The newly added credit in February was 110 billion yuan less than the previous year, mainly due to slower growth in resident loans and non-bank loans, which dragged down the overall growth. Meanwhile, medium- and long-term corporate loans increased by 350 billion yuan year-over-year. The sustainability of future growth in these loans depends on the recovery rate of market demand and the rising costs upstream.

Social financing increased year-over-year for two consecutive months at the start of the year, with the core components shifting from government bonds in January to RMB loans in February. In February, social financing increased by 146.1 billion yuan year-over-year, with RMB loans accounting for a major part, up by 195.6 billion yuan. The government bonds that supported social financing in January saw a decrease of 290.3 billion yuan in February, mainly due to the high base effect from the same period in 2025. The net financing of government bonds within the 2026 budget is limited, and its support for social financing growth may weaken in the future.

M1 continued to improve in February, partly due to the offsetting effect of residents’ demand deposits during the Chinese New Year, as consumption during the holiday exceeded expectations, further amplifying this effect. Historically, during the Chinese New Year month (2015–2025), residents’ demand deposits tend to rise significantly, related to off-balance-sheet asset revaluation and year-end bonuses paid to enterprises. The delayed timing of the 2026 New Year and the surge in consumption likely made residents’ demand deposits the main driver of M1’s improvement. Meanwhile, M2 growth remained stable, likely benefiting from increased fiscal expenditure and a significant decline in fiscal deposits.

Looking ahead, monetary policy will become more flexible and effective, with timely implementation of incremental policies aligned with economic conditions. The government work report explicitly states the flexible and efficient use of tools such as reserve requirement ratio cuts and interest rate reductions to maintain ample liquidity, optimize structural monetary policy tools, and increase their scale as needed, signaling that monetary policy will be used to smooth out economic fluctuations. Currently, the volatility in commodity prices is intensifying, and its impact on the economy has yet to fully materialize. Policymakers are expected to continue monitoring the situation and increase support when appropriate to ensure macroeconomic stability.

Routine Monitoring: Social Financing Year-over-Year Growth

In February, new credit was 900 billion yuan, 110 billion yuan less than the previous year. Resident sector loans decreased by 651.7 billion yuan year-over-year, with short-term loans down by 195.2 billion yuan and medium- to long-term loans down by 66.5 billion yuan. Corporate loans increased by 1.49 trillion yuan, with bill financing down by 204.3 billion yuan, short-term loans up by 270 billion yuan, and medium- to long-term loans up by 350 billion yuan.

In February, social financing increased by 2.3792 trillion yuan, up 146.1 billion yuan year-over-year, mainly driven by improvements in RMB loans. RMB loans increased by 848.4 billion yuan, government bonds increased by 1.4036 trillion yuan, corporate bonds decreased by 18.1 billion yuan, entrusted loans increased by 4.7 billion yuan, trust loans increased by 63.9 billion yuan, and undiscounted bills increased by 123.2 billion yuan.

M2 growth remained steady at 9.0% in February, while the new M1 increased by 1.0 percentage point to 5.9%. In terms of deposit structure, residents’ deposits increased by 2.5 trillion yuan, corporate deposits decreased by 1.76 trillion yuan, fiscal deposits decreased by 1.61 trillion yuan, and non-bank deposits increased by 1.39 trillion yuan, down 14.4 trillion yuan year-over-year.

Risk Warning

1. Uncertainty in policy response modes. External uncertainties are significant, objectively leading to different policy response approaches. Additionally, if the real estate market experiences unexpected changes, the pace and strength of policy implementation may vary.

2. Uncertainty in policy transmission mechanisms. Due to significant structural changes in the economy, the effects of the same policies may differ, which could influence the direction and scale of specific policies in 2026.