1H26 Credit Growth and Gov Bond Issuance Slow Down Further; Focus on Balance Sheet Strengthening; Highlight Buy-Rated CCB and BOC

Research evidence excerpt

1H26 Credit Growth and Gov Bond Issuance Slow Down Further; Focus on Balance Sheet Strengthening; Highlight Buy-Rated CCB and BOC

Goldman Sachs China Banks

4.0% and 8.0% respectively, compared to 5.5% and 8.6% in May 2026. This implies that

the M1-M2 gap widened to 4.0pp from 3.1pp, indicating a decline in liquidity activation.

Implications for Banks:

1. Growth Slowdown and Loan Yield Pressure: Loan growth further decelerated in 2Q,

with retail demand falling short of expectations. Consequently, loan yields may face

pressure as the loan structure continues to shift towards lower-yielding corporate loans.

2. Deposit Competition and Narrower NIM Improvement: While overall deposit

growth remains robust, structural changes indicate a clear migration of household

deposits and a slowdown in deposit growth rate. This suggests intensified deposit

competition, challenging banks’ deposit-gathering capabilities and potentially limiting

further declines in funding cost. Although NIM is expected to be supported by the

repricing of maturing deposits in 1H26, this tailwind will gradually diminish in 2H26.

Nevertheless, large banks, with their longer deposit repricing cycles, are better

positioned to achieve improved NIM trends.

3. Balance Sheet Differentiation: As loan growth slows, we anticipate that bank

differentiation will increasingly hinge on the strengthening of their balance sheets,

specifically their ability to enhance NPL coverage ratios and organically accumulate

capital. Therefore, we continue to favor large banks and highlight Buy-rated CCB and

BOC (more details here).

The authors would like to thank Zihan Wang for her contribution to this report.

Exhibit 1: TSF new additions breakdown Exhibit 2: M1/M2 growth vs. TSF growth