Summary of Key Points
Since August, the discount rate for bank acceptance bills (bills) has been stuck at around 0.5%, a so-called "floor price." Although regulatory authorities have set a lower limit to prevent prices from falling too low, the volume of bill transactions continues to increase, indicating that banks are still using bill financing as a means to meet their lending targets. This reflects weak credit demand from both real enterprises and individuals. Credit expectations for July were conservative, but with the implementation of policies aimed at stabilizing growth, future credit demand is likely to improve gradually.
I. Why Is the Bill Discount Rate Stuck at 0.5%? Regulatory Authorities Have Set a "Price Floor"
The discount rate for bill transactions is the price at which banks buy and sell already discounted bills. In the past, when credit demand was weak, rates would drop close to zero (as happened in some months last year) because banks needed to purchase bills to meet their lending targets. However, since July this year, regulatory authorities have prohibited discount rate transactions below 0.5%.
Why have they done this? Sources from city commercial banks suggest that bills are considered "ineffective assets" that do not generate much profit, and banks buy them mainly to fulfill regulatory requirements, rather than out of actual market demand. The purpose of setting a floor is to reduce competitive pressure among banks and prevent losses in these transactions. Nevertheless, the stabilization of rates does not mean that such aggressive buying behavior has stopped, as the pressure to meet lending targets remains.
II. Rates Are Stagnant, but Bills Are in High Demand; "Using Bills as Loans" Continues
Despite the rate being fixed at 0.5%, bills are in high demand in the market: small and medium-sized banks are competing to buy them, while there are few sellers, leading to an increase in transaction volume. For example, data from Pufajinfu shows that bill prices have remained stable around 0.5% in late July due to a lack of sellers, forcing buyers to accept this rate.
More interestingly, some banks engage in "cross-product transactions," purchasing both bills and the seller's certificates of deposit or bonds, effectively reducing the actual cost of the bills (the effective interest rate may be lower than 0.5%). This indicates that banks' desire to expand their lending volume is still strong, albeit through different means.
III. Continuous Increase in Bill Transactions; Weak Real Economy Financing Demand
Data shows that bill financing increased by more than 400 billion yuan year-on-year for three consecutive months from April to June, with a single-month increase of 525.3 billion yuan in June—a rare occurrence for a traditional "credit peak" month. The reasons for this are as follows:
- Personal loans have decreased by more than half (only 264.6 billion yuan added in June); people are reluctant to buy homes or consume.
- Medium- and long-term corporate loans have decreased by 1.62 trillion yuan (in the first half of the year), indicating that businesses are hesitant to expand production or invest.
- The PMI (Manufacturing Purchasing Managers Index) fell to 49.2% in July (below 50 indicates contraction), and the CPI was only 0.5%, both signs of weak economic activity and low borrowing willingness from businesses and individuals.
Banks have no choice but to use bills to meet their lending targets, as otherwise they will fail to meet regulatory requirements.
IV. Conservative Credit Expectations for July; Banks Need to Change Their Approaches
There is a general belief that credit will decline seasonally in July:
- The volume of loans funded through bills and short-term loans in June may mature in July, leading to negative growth in loan volumes in the first half of the month.
- With regulatory control on bill prices, banks can no longer rely on buying bills at low rates to meet targets and may turn to corporate short-term loans or interbank lending (e.g., lending to other financial institutions) to fill the gap.
However, the central bank has also stated that "single loan indicators do not reflect the actual state of real economy financing," suggesting that we should look beyond just loan volumes to see whether funds are actually being used in the real economy.
V. Is There Hope for Future Credit? Stable Growth Policies Could Bring a Turnaround?
The Political Bureau meeting at the end of July signaled a focus on stabilizing growth, which could lead to the following changes:
- The peak construction season is approaching, and new policy-based financial tools (such as support for infrastructure projects) will be deployed more quickly.
- Infrastructure projects in areas like transportation and energy will require funding.
- The combination of existing policies and new initiatives will drive investment and gradually restore credit demand from businesses and individuals.
Therefore, although current credit conditions are weak, there is hope for improvement in the third and fourth quarters, as the pressure on credit activities may ease.
In Summary: The low bill discount rate and increased transaction volume reflect banks' practice of using bills as loans due to weak real economy demand. However, with the implementation of policies aimed at stabilizing growth, future credit conditions are expected to improve. Ordinary people need not worry too much; this is a normal phenomenon during economic adjustments, and policies will gradually provide support.