(Yicai) Aug. 11 -- The rediscount rate of bank acceptance bills in China has been fluctuating around 0.5 percent this month, causing concerns in the market about credit sentiment.

The rediscount rate for six six-month bills issued by state-owned joint-stock banks was 0.5 percent yesterday, while the interest rate for three-month bills had been fluctuating around 0.51 percent since last week, according to data from the Shanghai Commercial Paper Exchange.

Due to the binary nature of ‘credit + funds,’ bill interest rates have always been regarded as a leading indicator of the credit extension sentiment. A drop in interest rates at the end of a month often indicates weak credit demand.

Unlike the zero interest rate phenomenon that often occurred in credit off-peak months, the bill rediscount rates have set up a bottom line of 0.5 percent since July under the guidance of regulatory authorities.

The threshold of 0.5 percent is a unified requirement by competent authorities for all institutions, a staffer at a city commercial bank in East China told Yicai. Regulators are said to have prohibited some institutions from conducting rediscount business of bank acceptance bills at a rate of below 0.5 percent since July to reduce the behavior of buying bills at low prices to raise the credit scale, the staffer added.

Even though 0.5 percent is not strictly a break-even point, such regulatory guidance can alleviate the negative impact of institutions pushing for credit scale, an employee at another city commercial bank said to Yicai.

The decline in new corporate loans was lower than that in new individual loans, according to data from the People’s Bank of China. The outstanding balance of short-term and medium-to-long-term corporate loans shrank by CNY790 billion (USD117.1 billion) in June from a year earlier, while the scale of newly added on-balance sheet bills surged by CNY525.3 billion, with their contribution to new credit surging from the same period last year, an uncommon occurrence for June, which is a traditional credit peak month.

June was the third consecutive month of a year-on-year increase of more than CNY400 billion in bill financing. Among new corporate loans, the growth in bill financing widened by CNY860.7 billion in the first half from a year earlier.

The continuous increase in bill financing indicates that demand for physical financing still needs to recover, according to insiders. Institutions generally believe that while social financing maintains stable growth, slowing credit expansion while improving its quality remained the main trend in July.

With the arrival of the peak season for project construction, the acceleration in the use of funds from new policy financial tools, and the expected increase in incremental policies, the market’s judgment on the macroeconomic sentiment and the recovery of credit will likely become more optimistic in the third and fourth quarters.

A meeting of the ‌Political Bureau of the Central Committee of the Communist Party of China at the end of July released a signal of ‘stable growth,’ said Wang Yifeng, chief financial analyst at Everbright Securities. Looking ahead, with the implementation of existing policies to improve efficiency and the accumulation of incremental policy reserves, new support points will be formed for the expansion of credit activities, and the pressure on the year-on-year growth may be slightly eased, he added.

Editor: Futura Costaglione