• Broad money (M3) expanded by 8.0% in December

• Lower loan growth in December

• Loan application rebounded by 4.8% in December

• Lower loan approval rate; impaired loan contracted

• Cautious outlook on banking sector due to rising cost of living and challenging business environment

Broad money supply (M3) expanded by 8.0% yoy in December following a 7.4% rise in the preceding month. It was the highest growth since July 2013 (8.3%). The growth was driven by fixed deposit (Dec: 9.6%; Nov: 8.6%), %), savings deposit (Dec: 4.5%; Nov: 4.0%) and foreign currency deposits which sharply increased by 13.7% yoy in December from 8.5% yoy in a month before. Nonetheless, demand deposits growth plummeted to 0.6% in December (Nov: 3.6%). On monthly basis, M3 slightly rose by 0.8% in December from 0.6% registered in a month before.

The narrow money supply or M1 moderated to 1.1% yoy in December (Nov: 1.1%) whilst surged by 2.2% on monthly basis (Nov: 0.6%).

Lower loan growth. Loan growth in December normalised to 5.6% yoy after posting above 6.0% growth for two consecutive months. The moderate growth was mainly due to the slower lending activity from business sector which softened by 5.7% yoy in December after surging by 6.9% in the prior month, the highest rise in almost two years (Apr’17: 7.5%). Majority of the sub-sectors registered a modest pace of growth in December; wholesale, retail, restaurants & hotels (Dec: 7.4%; Nov: 7.8%), real estate (Dec: 1.5%; Nov: 3.1%), manufacturing (Dec: 8.5%; Nov: 8.8%), construction (Dec: 13.8%; Nov: 16.5%) and other sector (Dec: 8.5%; Nov: 42.9%). In total, these five sectors contributed 27.5% over total loans.

Meanwhile, the loan from household sector was stable at 5.6% yoy in December but its share decreased marginally to 57.3% (Nov: 57.4%) to total loan. On monthly basis, total loans were up by 0.6% in December from an increase of 0.5% recorded in the previous month.

Source: BIMB Securities Research - 4 Feb 2019