• Broad money (M3) slowed to 5.5% in May

• Higher loan growth in May

• Loan application slumped in May

• Loan approval rate was higher, whilst impaired loan expanded

• Expect loans approval rate to decrease in 2018

Broad money supply (M3) slowed to 5.5% yoy in May from 6.2% in the previous month. Fixed deposit which accounted for 47.9% of the total broad money eased to 8.4% yoy (Apr: 9.1%) whilst demand deposits decelerated to 5.5% yoy (Apr: 7.3%). It was the slowest growth since February 2017 (4.1%). Saving deposits increased marginally to 3.9% in May from 3.7% in April. Nevertheless, the Negotiable Instruments of Deposits (NID) continued posting negative growth for seventh consecutive months (May: -23.3%; Apr: -22.5%). On monthly basis, M3 was up by 0.2% in May following a 0.1% rise in a month before.

The narrow money supply or M1 moderated to 6.7% yoy or RM26.2bn in May, from 7.5% in the preceding month. However, on monthly basis, M1 rebounded to 0.3% in May after fourth consecutive month of negative growth.

Higher loan growth. Loan growth rose by 4.9% yoy in May from a 4.8% increase in the prior month. The higher loan growth was driven by a steady household loan as well as loan from certain business sector. The main business sectors that contributed to the expansion were wholesale, retail, restaurants & hotels, real estate, manufacturing and construction. In contrast, loans to the financing, insurance & business services continued posting negative growth since October 2017. Loans for transport, storage and communication were also registering prolong negative growth in six months.

Household loans which hold 57.4% of total loans edged slightly lower to 5.6% yoy in May from 5.7% yoy rise in the prior month. The increase was supported by loans for the purchase of residential property which rose by 8.8% yoy in May. Purchase of residential property holds the highest share over total loan by purpose, accounting for 30.2%. Loan growth for purchase of non-residential property maintained at 2.0% yoy in May whilst loans for personal use expanded by 6.1% yoy (Apr: 5.9%). In contrast, the loans for credit card decelerated to 1.8% yoy in May after rising by 3.8% yoy in April. Loan for purchase of passenger cars continue registering negative growth since January 2017. It dropped 1.4% in May from 1.0% decline in the previous month. On monthly basis, the total loans grew slightly lower to 0.3% in May from 0.4% in the earlier month.

The annual growth of loan applications slumped to -9.2% yoy in May after posting an outstanding 20.1% increase in April. The decrease was mainly triggered by the household sector which declined by -11.6% in May from 10.1% rise in April. The decline in the household sector’s loan application gave huge impact as it accounted 56.0% over total loan application. It was dragged down by the broad-based of loan application for the household sector; purchase of residential property (-15.5%), non-residential property (-12.2%), purchase of passenger car (-4.6%), personal use (-0.9%) and credit card (-14.4%).

The non-household sector which was also contributed to a decline in loan application was propelled by construction (-11.1%), real estate (-13.0%), retail trade (-11.6%), electricity, gas and water supply (-90.9%) and other business activities. Furthermore, there was a moderation in loan application for manufacturing (May: 19.5%; Apr: 41.5%), wholesale trade (May: 9.1%; Apr: 67.7%) and financial intermediation (May: 24.1%; Apr: 91.9%).

On monthly basis, loan application declined by -11.7% in May from 1.4% increase recorded in the prior month. Demand from the household sector plunged by -8.9% mom in May after expanding by 2.5% in April. Bulk of the total loan applications came from household sector (56.0%).

Source: BIMB Securities Research - 2 Jul 2018