Monetary Conditions

• Monetary indicators posted mixed trend in April. Broad money supply (M3) grew at a slightly slower pace (+4.4% yoy; Mar: +4.5% yoy). Narrow money supply (M1) growth accelerated further (+11.0% yoy; Mar: +9.2% yoy) due to lower base effect in the previous year. Growth in loan applications moderated to +0.6% yoy (Mar: +6.4% yoy) while that of loan approvals slowed sharply to +0.3% yoy (Mar: +28.9% yoy). BNM foreign reserves increased by +US$0.7bn to US$96.1bn (Mar: +US$0.4bn to US$95.4bn).

• The moderation in leading loan indicators and monetary data suggest economic growth moderated in the earlier part of 2Q 2017.

Loan & Deposit

• Household loan-deposit gap remained small in April. Deposit grew at a slower pace of +5.0% yoy (Mar: +5.7% yoy) while household credit moderated slightly in April (+5.1% yoy; Mar: +5.0% yoy).

• Overall deposit charted a faster growth of +3.5% yoy (Mar: +3.3% yoy) supported by higher business deposit (+4.0% yoy; Mar: +2.8% yoy) and increased growth in foreign deposit (+9.3% yoy; Mar: +7.5% yoy).

• Outstanding total loan growth increased slightly by +6.1% yoy (Mar: +6.0% yoy). This was driven primarily by businesses for working capital financing (+7.5% yoy; Mar: +6.9% yoy). Meanwhile, PDS issuance recorded a smaller increase of RM7.8bn (Mar: +RM21.4bn).

• Loan indicators for consumer sector deteriorated in April. Loans applied for passenger car loans declined by -1.1% yoy (Mar: +6.8% yoy). Likewise, loans approved for passenger car loans slowed sharply by +3.5% yoy (Mar: +14.9% yoy). Meanwhile, loans applied for residential properties grew at a slower pace of +8.7% yoy (Mar: +20.8% yoy) while loans approved for residential properties also displayed similar trend (+14.1% yoy; Mar: +20.1% yoy).

Liquidity

• Excess liquidity in the banking system continued to trend downwards slightly to RM135.4bn (Mar: RM136.4bn). Other liquidity indicators, such as loan-deposit ratio also showed slight tightening in April (89.4%; Mar: 89.1%). Similarly, loan-to-fund-and-equity ratio also showed a comparable pattern.

• Foreign holdings of Malaysian government debt securities recorded an inflow of RM+6.0bn. This was the first increase after five consecutive months of bond outflow (Nov 16 – Mar 17: -RM61.6bn). Consequently, foreign holdings of MGS inched up to 39.7%, touching 2012 levels (Mar: 38.5%).

• Foreigners continued to increase their position in Malaysian equities, albeit at a slower pace (+RM2.7bn; Mar: +RM4.3bn).

• We maintain our forecast for GDP growth to moderate in 2H17. Full-year GDP growth forecast is unchanged at 4.9%. Risk to inflation also remains low as CPI growth is already on moderation path. Consequently, we expect BNM to stay pat on OPR.

Source: Hong Leong Investment Bank Research - 1 Jun 2017