Monetary Conditions

• Monetary indicators moderated in February. Broad money supply (M3) grew at a slower pace (+3.6% yoy; Jan: +4.4% yoy) while narrow money supply (M1) growth moderated (+5.5% yoy; Jan: +6.5% yoy). However, most monetary indicators improved sequentially on a monthly basis. Loan applications and approvals rebounded sharply while loan disbursements grew at steady pace. BNM foreign reserves declined slightly by US$0.1bn to US$94.9bn (Jan: +US$0.4bn to US$95.0bn).

• The overall increase in Jan-Feb 2017 average in monetary conditions continued to suggest modest improvement in economic activity compared to the preceding quarter.

Loan & Deposit

• Household loan-deposit growth gap was broadly maintained as deposit growth grew at a slower pace of +5.5% yoy (Jan: +6.0% yoy) while households credit expansion moderated slightly to +5.1% yoy (Jan: +5.2% yoy).

• Overall deposit charted a slower growth of +2.2% yoy (Jan: +2.6% yoy) supported by continued growth in household (+5.5% yoy; Jan: +6.0% yoy) and foreign deposits (+6.7% yoy; Jan: +7.6% yoy).

• Loan indicators for consumer sector recovered in February. Loans applied for residential properties strengthened by +34.5% yoy (Jan: 3.4% yoy). Likewise, loans approved for residential properties grew by +27.3% yoy (Jan: +12.5% yoy). In addition, loans applied for passenger cars also rebounded by +24.3% yoy (Jan: -2.1% yoy), in tandem with improvement in loans approved for the similar sub-segment (+6.4% yoy; Jan: +1.9% yoy).

• Business loans grew at a stable pace of +5.4% yoy with growth driven by expansion in manufacturing; finance; insurance. Meanwhile, PDS issuance showed an increase of RM4.9bn (Jan: RM1.6bn).

Liquidity

• Excess liquidity in the banking system trended upwards to RM139.6bn after five consecutive months of moderation. Loan-deposit ratio also recovered on faster deposit growth (89.5%; Jan: 89.8%). Other liquidity indicators which reflect a broader funding base (loan-to-fund and loan-to-fund and equity ratio) also showed a slight recovery.
• Foreign holdings of Malaysian government debt securities continued to decline (-RM7.4bn; Jan: -RM3.5bn). Consequently, foreign holdings of MGS fell further to 44.7% in February, touching January 2013 level.

• On the other hand, foreigners continued to increase their position in Malaysian equities (+RM0.9bn; Jan: +RM0.5bn)

• We expect BNM to stay pat on the OPR given firmer growth and rising inflation outlook. Our GDP growth forecast of 4.5% is not expected to spur strong demand pressure given potential output growth of 4.5-5.0% as reported by BNM.

Source: Hong Leong Investment Bank Research - 3 Apr 2017