• Broad money (M3) expanded by 4.9% in February

• Higher loan growth in February was supported by main business and household sector

• Loan application slumped in February

• Loan approval rate was higher, whilst impaired loan declined

• Lower impaired loan is expected in 2018

Broad money supply (M3) expanded by 4.9% in February from 4.6% in the previous month. Fixed deposit which accounted for 48.2% of the total broad money posted a double-digit growth of 10.4% yoy in February from 9.4% in January. Demand deposit eased by 8.4% in February as compared to 11.2% rise in January while saving deposit improved by 2.8% (Jan: 2.0%). In contrast, the negotiable instruments of deposits (NID) continued registering a negative growth for fourth consecutive months (Feb: - 20.8%; Jan: -17.9%). On monthly basis, the broad money rose by 0.6% in February, following an increase of 0.8% in the prior month. The narrow money supply or M1 grew by 8.5% yoy or RM33.0bn in February, from 8.8% in the previous month. However, on monthly basis, M1 fell by 0.3% for two months in row.

Higher loan growth. Loans growth for banking sector increased by 4.5% in February from 4.2% in the preceding month. The improvement in loan growth was supported by the major private sector and household sector. The business sector that contributed to the expansion was wholesale, retail, restaurants and hotels (Feb: 3.1%; Jan: 2.8%), real estate (Feb: 5.1%; Jan: 4.5%), construction (Feb: 12.7%; Jan: 12.4%) and primary agriculture (Feb: 1.1%; Jan: 0.2%). On the flipside, loans to the financing, insurance and business services continued registering a negative growth since October 2017 (Feb: -0.3%; Jan: -0.6%). Likewise, loans to the manufacturing sector has declined for third consecutive months (Feb: -1.7%; Jan: -1.4%).

Household loans which hold 57.4% of total loans extended to 5.6% in February after growing at a range of 5.0-5.3% for a prolong period and marked the highest growth since September 2016. The increase was supported by the loan growth for the purchase of residential property which grew by 9.0% in February. Purchase of residential property hold the highest share over the total loan by purpose, accounted 30.0%. Loan growth for personal use and credit card were also higher in February at 5.0% and 3.8% respectively. Whereas, purchase of non-residential property moderated to 1.9% in February from 2.0% in the preceding month. Nevertheless, loan for purchase of passenger car continued posting a negative growth since January 2017. It dropped -0.9% in February from -1.2% in the last month.

On monthly basis, total loans grew by 0.3% in February as compared to the previous month’s growth of 0.5%.

The annual growth of loan application slumped by -5.8% yoy in February after a 25.5% significant rise in a month earlier. The decline was triggered by the household sector which plunged by -4.6% from 26.2% increase in January. The loan application for purchase of residential property, passenger cars and credit card dropped in February by -12.1% (Jan: 18.9%), -14.9% (Jan: 10.2%), and -1.6% (Jan: 10.8%) respectively. On the other hand, the loan application for purchase of non-residential property (Feb: 43.9%; Jan: 11.3%) and personal uses (Feb: 45.6%; Jan: 12.8%) were higher in February.

The decline of loan application was also prompted by other sectors; construction (Feb: - 36.1%; Jan: 38.7%), transport, storage and communication (Feb: -40.0%; Jan: 9.8%), primary agriculture (Feb: -27.0%; Jan: 74.1%), retail trade (Feb: -8.3%; Jan: 46.2%) and education, health and others (Feb: -21.4%; Jan: 51.0%). It was also partially dragged by the slowdown in manufacturing sector (Feb: 19.4%; Jan: 73.8%).

On monthly basis, the loan application growth dropped 22.9% in February from 30.9% increase registered in the preceding month. Demand from the household sector fell by 26.5% mom after posting a 26.5% rise in January. Bulk of the total loan applications came from household sector (54.1%).

Source: BIMB Securities Research - 2 Apr 2018