Monetary Conditions

• Monetary indicators moderated in Jun. Broad money supply (M3) grew at a slightly slower pace (+4.3% yoy; May: +4.7% yoy). Meanwhile, narrow money supply (M1) growth moderated (+9.3% yoy; May: +9.8% yoy). Loan applications reverted to a contraction of -15.3% yoy (May: +4.9% yoy). However, loan approval and disbursement rebounded to +9.8% yoy and +3.1% yoy respectively (May: -2.3% yoy; -1.3% yoy respectively). BNM foreign reserves increased by +US$0.9bn to US$98.9bn (May: +US$1.9bn at US$98.0bn).

Loan & Deposit Liquidity

• Household loan-deposit gap remained small in May. Household deposits grew at a slower pace of +3.9% yoy (May: +5.1% yoy) while household credit moderated slightly (+5.0% yoy; May: +5.1% yoy).

• Overall deposits charted a slower growth of +3.0% yoy (May: +3.4% yoy) following decline in foreign deposits (- 3.9% yoy; May: +9.9% yoy) and moderation in household deposits (+3.9% yoy; May: +5.1% yoy) that offset the larger increase in business deposits (+5.5% yoy; May: +4.6% yoy).

• Overall loan growth picked up to +5.7% yoy (May: +5.5% yoy) due mainly to faster growth in businesses loans (+6.5% yoy; May: +6.1% yoy). However, net PDS issuance recorded a smaller increase of RM1.3bn (May: RM11.1bn).

• Loan indicators for consumer sector weakened in June. Loans applied for passenger car loans contracted by -22.3% yoy (May: +16.9% yoy). Likewise, loans approved for passenger car loans declined by -15.4% yoy (May: +18.1 yoy). Meanwhile, loans applied for residential properties slowed sharply to +6.2% yoy (May: +18.7% yoy) while loans approved for residential properties also grew at a slower pace of +8.1% yoy (May: +22.8% yoy).

• Excess liquidity in the banking system moderated to RM129.0bn (May: RM137.1bn). Other loan liquidity indicators, such as loan-to-fund and equity ratio also showed a weaker trend. Nevertheless, The trends still showed a relatively favourable picture compared to the Trump- induced period of capital outflow (Nov- Dec 2016).

• Foreign holdings of Malaysian government debt securities recorded an outflow of –RM0.5bn (May: RM8.8bn), reversing the trend of inflow in the previous two months. This was due to hawkish statements released by the Fed and other policymakers in advanced economies which led to capital reversal from emerging market economies, including Malaysia. Consequently, foreign holdings of MGS inched down slightly to 41.2% (May: 41.8%).

• Foreigners also reduced their buying momentum in Malaysian equities (+RM0.3bn; May: +RM2.1bn).

• The continued expansion in quarterly monetary data suggests that economic growth maintained its momentum in 2Q17. However, weaker leading loan indicators suggest growth could moderate in 2H17 in line with our expectation. We reiterate our view for BNM to stay pat on OPR.

Source: Hong Leong Investment Bank Research - 1 Aug 2017