• Broad money (M3) expanded by 7.5% in January

• Lower loan growth in December

• Household loan growth edge lower

• Lower total deposits growth

• Banks liquidity remain healthy

Broad money supply (M3) expanded by 7.5% in January, slower than 8.0% growth in December. The growth was driven by fixed deposit (Jan: 9.6%; Dec: 9.1%), savings deposit (Jan: 6.4%; Dec: 4.5%). Nonetheless, demand deposits growth dropped -0.4% in January (Dec: 0.6%) while foreign currency deposits decreased by 8.3% in January from 13.3% yoy in a month before. On monthly basis, M3 rose by 0.3% from 0.8% registered in a month before. The narrow money supply or M1 increased to 1.6% yoy in January (Dec: 1.1%) but on monthly basis growth slowed to 0.1% (Dec: 2.2%).

Lower loan growth. Loan growth moderated to 5.5% yoy in January compared with 5.6% in December. It was driven by a slowdown in loans extended to the corporate sector which saw moderation in loans extended to the wholesale & retail, utilities, construction and real estate sectors. However, it was partly mitigated by higher loans extended to the transport & storage and manufacturing sectors during the month.

Likewise, growth of household sector loans edged lower for the fifth consecutive month to 5.5% yoy in January (Dec: 5.6%), in tandem with the gradual wind down of residential property loans by the banking sector, slower growth of credit cards and a decline in passenger car loans. On monthly basis, total loans remained at 0.5% as recorded in the previous month.

Lower total deposits growth. Total deposits grew by 6.1% yoy in January, slower from 7.5% increase registered in a month earlier. Total deposits were dragged down by repurchase agreements of local and foreign currency (Jan: 39.3%; Dec: 79.1%) and foreign currency deposits which grew by 7.3% (Dec: 10.0).

Banks liquidity remain healthy

Banks’ liquidity remained healthy as the liquidity coverage ratio (LCR) edged higher to 144.3 (Dec: 143.2), due to the higher stock of high-quality liquid assets which far outpaced the increase in net cash outflow recorded in the banking system. While loan growth has moderated to 5.2% in 2018, growth is forecasted to ease further to 5.0% in 2019, on the back of slower global and domestic growth trend. The GDP growth of 4.7% last year was quite resilient and the activities we saw in the first two months this year would indicate that GDP growth would remain healthy.

We maintain our 2019 growth forecast of 4.8% on the back of supportive private consumption and investment activity. In ensuring capital market stability, ample liquidity and to remain supportive of growth, we believe BNM will hold the OPR steady at 3.25% this year with room to cut if the economic environment deteriorates.

Source: BIMB Securities Research - 1 Mar 2019