• Broad money (M3) stable in January
• Loan growth steady in January with moderation in household and main business sector
• Loan application rallied in January
• Loan approval rate was lower, whilst Impaired loan rebounded
• Modest loan growth expected in 2018

Broad money supply (M3) growth moderated in January to 4.6% yoy, compared to 4.7% in December 2017. Fixed deposit which accounted for 48.1% to the total broad money rose by 9.4% yoy after posting at 6.4% in December 2017. Nevertheless, demand deposit and saving deposit slowed to 11.2% (Dec 2017: 11.8%) and 2.0% (Dec 2017: 3.7%) respectively. The negotiable instruments of deposits (NID) continued posting a negative growth in January, plunged by -17.9% (Dec 2017: -2.1%). On monthly basis, the broad money rose by 0.8% in January, following an increase of 0.3% in the prior month.

The narrow money supply or M1 grew by 8.8% yoy or RM34.3bn in January, from 11.0% in the previous month. However, M1 declined 0.3% mom in January (Dec’17: 4.4%).

Stable loan growth. Loans growth for banking sector expanded marginally by 4.2% in January from 4.1% in the previous month. The stable loan growth was due to the broad-based moderation across the major business sectors, specifically in wholesale, retail, restaurants and hotels (2.8%) and real estate (4.5%). However, loans to the financing, insurance and business services coupled with loans to the manufacturing sector registered a declining growth in January; -0.6% and -1.4% respectively. Loans to transport, storage and communication sector also fell by -3.9% in January. In contrast, the construction sector accelerated for three consecutive months (Jan18: 12.4%; Dec17: 11.7%, Nov17: 8.8%).

Household loans which hold 57.4% of total loans in January also increased slightly to 5.3% from 5.1% in the preceding month. The loan growth for household sector had grown below 6.0% since June 2016. The stable growth in January was partly reflected by the loan growth for the purchase of residential property which remained at 8.9% for three consecutive months. Purchase of residential property hold the highest share over the total loan by purpose, accounted 29.9%. Whereas, purchase of non-residential property eased to 2.0% in January from 2.1% in the previous month. Furthermore, purchase of passenger car continued posting a negative growth in January, dropped 1.2%. It marked the twelfth consecutive months of negative growth for purchase of passenger cars.

On monthly basis, total loans moderated to 0.5% in January as compared to the previous month’s growth of 1.1%.

The annual growth of loan application jumped to 25.5% yoy in January from -2.1% in a month earlier. It was the highest growth in four years (Nov 13: 40.8%). The outstanding application growth was mainly contributed by the household sector which surged 26.2% in January from 6.8% in December 2017. The loan application for purchase of residential property, non-residential property and personal uses spiked in January; 18.9% yoy (Dec17: 9.4%), 43.9% yoy (Dec17: 6.5%) and 45.6% (Dec17: 24.6%) respectively. Whilst, the application of loan for purchase of passenger car rebounded to 10.2% yoy (Dec17: -11.5%) after posting a declining growth since August 2017. Furthermore, the loan application for credit cards was also rallied to 10.8% from a 2.3% decrease in December 2017.

The significant growth of loan application was also contributed by other major sectors; manufacturing (Jan18: 73.8%; Dec17: -10.3%), construction (Jan18: 38.7%; Dec17: -27.3%), wholesale trade (Jan18: 26.1%; Dec17: 6.4%) and transport, storage and communication (Jan18: 9.8%; Dec17: -17.1%).

On monthly basis, the loan application growth picked up to 30.9% in January from -30.8% registered in the preceding month. Demand from the household sector rebounded to 22.1% mom after posting 21.7% drop in December. Bulk of the total loan applications came from household sector (56.8%).

Lower loan approval rate. The annual growth of loan approval expanded by 26.9% (Dec: 17.4%) while monthly growth continued to decline by -6.6% (Dec17: -6.0%) in January. Overall, the approval rate by banks slowed to 42.9% from 60.2%. The bulk or 21.9% of total loan approved were for purchase of residential property while working capital hold 16.7% over total loan approved.

Gross impaired loans. The banking sector’s non-performing loans rebounded to 0.1% in January after decline by -0.3% December. In January 2018, total impaired loans amounted to RM24.59bn, which was slightly higher than the same month of last year’s RM24.57bn. Impaired loans from the household sector was lower in January 2018, at RM9.2bn as compared with corresponding period of last year (RM9.4bn).

Higher growth in total deposits. Total deposits increased 4.3% yoy in January from 4.0% in the preceding month. Bulk of the total deposit came from individual (37.8%) which eased by 2.9% from 3.9% in the prior month. Deposit from business enterprises grew by 9.4% in January (Dec17: 7.9%) while deposit from financial institution dropped by -1.0% (Dec: -1.4%). Furthermore, deposit from state government moderated to 4.1% from 5.0% in the previous month. On monthly basis, the deposit growth picked up by 0.65% after fell 0.09% in the prior month.

Modest loan growth expected in 2018

Total loans have seen a growth below 6.0% since May 2017 and touched the lowest growth of 3.9% in November 2017. The modest loan growth was primarily underpinned by the moderation of loan for household sector as household debt accounted almost 60% over total banking loan. Likewise, loan growth for the household sector was also below 6.0% for a prolong period of time since July 2016. This might be affected by the continuation of the stricter rules on lending by the banks.

BNM proceeded to normalise the monetary policy and raised the Overnight Policy Rate (OPR) by 25bps in its January Monetary Policy Committee meeting. The rate hike resulted in banks increasing its deposit and base financing rates. Moving ahead, we foresee a slight moderation in loan growth for 2018 as banks are forced to raise its base lending rates, which may result in slower consumer and corporate spending. On the other hand, we expect higher deposit rates to encourage savings among consumers and therefore expect deposit growth to increase slightly during the year. While we expect full year loan growth to moderate, we maintain our buoyant outlook on loan growth and anticipate it to expand by 5.2% in 2018 from 5.3% in 2017 as we expect consumer and corporate activities to remain robust.

Source: BIMB Securities Research - 1 Mar 2018