As we transition into 2024,the economic landscape is being shaped by a variety of factors influencing both the lending and deposit sectors of banking.While overall loan interest rates are on the decline,banks have been continually reducing deposit interest rates.This adjustment aims to alleviate the pressure on banks' interest margins,which have been significantly affected by a combination of market forces and a high base of deposits from the previous year.Small and medium-sized banks,in particular,are facing increased challenges in attracting deposits,especially when compared to the relatively abundant deposits recorded in 2023.The expectation is that we will witness a deceleration in deposit growth for banks across the board in 2024.

On the one hand,underlying demand for credit appears to be robust despite these pressures.The external economic demand remains favorable,with positive feedback reflecting recent performances in foreign trade.Banco de China has reported that early 2024 showed a marked improvement in exports,outpacing the same period from the previous year.Specifically,there has been an uptick in exports to the United States,as well as sustained high growth rates in exports to Southeast Asia,the Middle East,and Russia.Moreover,the product categories experiencing growth reflect an evolving consumer preference—high-end goods such as fitness equipment and outdoor gear are on one end of the spectrum,while lower-priced consumables also retain their share of the market amidst a broader trend toward lower spending in some consumer demographics.

This sentiment is echoed in recently released trade data,which indicates a resurgence in exports.In February,China’s total exports saw a year-on-year growth rate of 7.1%,a noteworthy recovery from the sluggish performance experienced throughout much of 2023.Furthermore,exports to the United States specifically rebounded to a growth rate of 5%,signifying the importance of the U.S.market in China’s export strategy moving forward,even as growth in exports to the EU remains flat.

While external demand remains solid,internal market conditions show more complexity.Key sectors such as real estate and traditional manufacturing are encountering significant challenges,characterized by an overall lack of demand.In contrast,emerging industries within the manufacturing sector—particularly those tied to technological advancements—are thriving.The government’s focus on fostering high-tech industries has proven prescient,with the fixed asset investment in high-tech manufacturing growing consistently faster than the broader manufacturing sector.

Insights from engagements with various banks suggest that the structural challenges within the domestic real estate sectors are still notable.Although there are signs of improvement in the turnaround of real estate projects,observers urge caution.They assert that improvements correlate with new policy measures designed to streamline financing for real estate ventures.For instance,major cities are urged to establish financing coordination mechanisms to bolster project development,which should enhance the funding landscape for projects that previously struggled under rigorous financial constraints.

This interplay of demand and supply dynamics is critical for elucidating the prospects for household and corporate credit.Banks are beginning to see a loosening grip on lending to the real estate sector,with historical but necessary caution applied when engaging with the housing market.By the end of February 2024,national efforts to elevate the financing mechanisms for the real estate sector resulted in a substantial number of projects being expedited,although the actual level of consumer demand remains to be fully realized.

Further complicating matters is the fluctuating environment of loan pricing.Since the beginning of the year,interest rates on new loans are decreasing overall,yet many banks are adopting lower rates to remain competitive within a fiercely contested consumer lending market.Reports highlight that payment rates for short-term loans,such as those for consumer goods,have dipped below 3% in some instances,indicating a race to attract customers while maintaining market relevance.

As banks navigate these pressures,the interrelationship between deposits and loans must be carefully monitored.Although banks have attempted to adjust deposit rates to reflect the changing cost of borrowing,the accumulation of structural stressors points to a challenging environment for attracting deposits moving into 2024.With the backdrop of low-interest rates persisting,both large and regional banks are feeling strains in maintaining their deposit bases amidst stiff competition.

Statistical insights reveal this dynamic,with deposit growth slowing to just 9.2% in January 2024 compared to much higher rates observed in prior years.Despite the pressures of declining deposit rates,there remains a notable pivot toward wealth management products,indicating that investors may be finding alternative pathways to generate returns.Current estimates placed the total value of existing wealth management products at approximately 26.8 trillion yuan.

In summary,as we push further into 2024,the confidence surrounding both external demand and emerging growth sectors indicates a complex interplay.While the positive signals from exports and high-tech manufacturing point to a recovery,internal demand dynamics particularly in traditional sectors need further observation.The challenge for banks in this environment may well hinge on their ability to adapt effectively to tighter deposit conditions while capitalizing on burgeoning areas of credit demand.These trends,emerging at the nexus of policy and consumer behavior,will shape the financial landscape in the months to come.