In 1Q2017, China banks’ overall loan growth was up 12.9% year-on-year, continued to be driven by faster growth in retail loans, which posted 24.7% year-on-year growth, while total corporate loans were up 8.2% y-o-y. By the end of the quarter, retail loans had accounted for 31.8% of total bank loans whereas corporate loans accounted for 67.2% of total loans.

Growth in mid-to long-term corporate loans started to recover in 1Q2017, with mid-to-long-term corporate loans outstanding increased by RMB3.2 trillion and up 14.8% y-o-y, compared to 12.1% year-on-year increase in 2016. Evidence of corporate customers shifting their funding source from bond issuance to bank loans were reflected, given the rise in bond yields and interbank interest rates.

Even by excluding the RMB343 billion quarter-on-quarters decreased in China corporate bond new issuance amount in 1Q2017, the actual mid-to-long term corporate funding would still increased by RMB2.9 trillion. In fact, investment growth from manufacturing segment accounted for 31% of total fixed asset investments, also regained growth as fixed asset investments from the manufacturing segment increased 4.9% y-o-y, versus 4.1% y-o-y in 2016.

In 1Q2017, industry-wide Non Performing Loans (“NPL”) was flat on quarter-on-quarter basis while Special Mention Loans was down by 9bps quarter-to-quarter to 3.77%. All in all, the continuous improvement in risky segment’s corporate cash flows and profitability is positive to China banks’ asset quality and market analysts’ expectations on China banks’ NPL and special-mention u

China banks with stronger balance sheets, stronger capital adequacy levels and lower loan-to-deposit ratios such as China Construction Bank Corporation (“CCB”) and ICBC will stand to benefit from the rising corporate credit demand. In 1Q2017, China banks’ like CCB and ICBC continued to hold the highest Core Tier capital 1 ratios, both reaching 13% suggesting that these banks have the strength to further grow their risk-weighted capital.

In summary, corporate customers are gaining confidence on their future outlooks and are re-investing for the mid-to-long term again. This is positive to China banks as longer duration loans will enable them to charge a higher interest margins, compared to short-term lending, thus positive to banks' Net Interest Margins (NIM), while the rise in mid- to long-term credit demand may imply that a new credit cycle is slowing emerging.