China's July Bank Lending Contracts by Record Amount as Credit Demand Weakens

China's new yuan loans posted a record contraction in July, underscoring persistent weakness in credit demand across the world's second-largest economy. New loans fell by 340 billion yuan ($50.4 billion) last month, the largest decline on record and the second contraction this year, according to calculations based on data released by the People's Bank of China (PBOC) on Friday.

The figure was a sharp reversal from June, when new loans rose by 1.61 trillion yuan, and missed analyst expectations of a 45 billion yuan increase. The contraction was driven by a 460.3 billion yuan decline in household loans, including mortgages, and a 130 billion yuan drop in corporate lending. Banks typically slow lending after front-loading credit ahead of the end of the June quarter.

Outstanding yuan loans grew by 5.1% in July from a year earlier, a record low and below the market consensus of 5.3%. Total new loans for the first seven months of the year stood at 10.38 trillion yuan, down from 12.87 trillion yuan in the same period last year.

The weak data comes despite continued declines in nominal bank lending rates. Capital Economics noted that with inflation ticking up, real lending rates have fallen sharply this year, yet loan demand remains weak. The firm added that the PBOC does not appear particularly concerned about the recent credit weakness and still expects around 30 basis points of rate cuts over the coming year.

On Wednesday, the PBOC reiterated its commitment to an appropriately loose monetary stance and said it would roll out practical, effective measures as needed, but stopped short of signalling explicit cuts to policy rates or banks' reserve-requirement ratio. Top leaders have instead focused on accelerating fiscal spending on already approved infrastructure projects through year-end.

The central bank-backed Financial News urged investors to look beyond bank loans and consider bond issuance and other funding channels, reflecting China's increasingly diversified credit system. In 2025, loans accounted for 45% of the increase in total social financing, while bond and equity financing combined made up 47%, surpassing loans for the first time.

Broad M2 money supply grew 7.7% in July from a year earlier, a 16-month low and below the forecast of 7.9%. Outstanding total social financing rose by 7.4% year-on-year, unchanged from June, though any acceleration in government bond issuance could boost the measure.