Monetary Conditions

• Monetary indicators continued to expand in November. Broad money supply (M3) moderated (+2.9% yoy; Oct: +3.2% yoy) but narrow money supply (M1) growth strengthened (+4.5% yoy; Oct: +2.7% yoy). Loan disbursements rebounded by +9.6% yoy (Oct: -2.0% yoy). BNM foreign reserves declined by US$1.4bn to US$96.4bn (Oct: -US$0.1bn) amid capital outflows post US presidency election.

• The continued expansion in monetary conditions in November indicates sustained economic momentum in the final quarter.

Loan & Deposit

• Household loan-deposit growth gap remained stable, as deposit growth strengthened to +5.4% yoy (Oct: +4.7% yoy) while households credit expansion remained steady at 5.4% yoy (Oct: +5.4% yoy).

• Overall deposit growth grew at a slower pace of +1.4% yoy (Oct: +1.9% yoy) following slower increase in foreign deposits (+5.9% yoy; Oct: +8.3% yoy) that offset the larger increase in household deposit (+5.4%; Oct: +4.7% yoy).

• Loan indicators for consumer sector improved in November. Loans applied for passenger cars declined by smaller pace of -3.4% yoy (Oct: -11.8% yoy) while residential loan applications rebounded by +11.5% yoy (Oct: -0.1% yoy). Similarly, loans approved for passenger cars deteriorated by a smaller magnitude of -11.8% yoy (Oct: -18.5% yoy) while residential properties eked out a small gain of +0.2% yoy (Oct: -9.6% yoy).

• Growth in business loans picked up for the third consecutive month (+4.6% yoy; Oct: +2.9% yoy) with year-on-year expansion in the manufacturing; finance, insurance and business sectors. However, net PDS issuance showed a decline of –RM1.8bn (Oct: 3.9bn) following larger corporate bond redemptions.

Liquidity

• Excess liquidity in the banking system remained steady at RM142.2bn as at end-Nov (Oct: RM142.9bn). However, overall deposit-loan gap declined to RM174.6 (Oct: RM187.7bn) following the moderation in deposit growth.

• Foreign holdings of Malaysian government debt securities declined substantially by RM19.9bn in November, surpassing the monthly peak of outflows during taper tantrum in July 2013 (RM-12.3bn). Consequently, foreign holdings of MGS fell to 48.4% after touching a record high of 51.9% in the previous month.

• Foreigners also reduced their position in Malaysian equities, by RM3.9bn in November (Oct: -RM0.4bn). As a result, cumulative foreign flows in Malaysia now stands at -RM1.8bn, marking the third consecutive year of net outflows in the equity market (2015: -19.5bn; 2014: -6.9bn).

• We expect BNM to stay pat on the OPR given firmer growth and rising inflation outlook. We see a high probability of SRR cut (-50bps) in early 2017 to increase liquidity in this volatile environment.

Source: Hong Leong Investment Bank Research - 3 Jan 2017