Monetary Conditions

• Monetary indicators grew at a faster pace in August. Broad money supply (M3) grew at a stronger pace (+5.3% yoy; Jul: +4.8% yoy). Meanwhile, narrow money supply (M1) growth remained steady at +10.9% yoy. Growth in loan applications moderated sharply to +4.1% yoy (Jul: +22.9% yoy) while loan approvals also grew slower at +9.9% yoy (Jul: +24.8% yoy). Meanwhile loan disbursement grew further by +15.8% yoy (Jul: +13.3% yoy). BNM foreign reserves increased by +US$1.1bn to US$100.5bn (Jul: US$99.4bn).

Loan & Deposit Liquidity

• Household loan-deposit gap remained small in August. Deposits grew at a faster pace of +4.2% yoy (Jul: +4.0% yoy) while household credit moderated slightly to +5.0% yoy (Jul: +5.1% yoy).

• Overall deposits charted a faster growth of +5.1% yoy (Jul: +4.3% yoy) following the increase in household deposits (+4.2% yoy; Jul: +4.0% yoy) and business deposits (+8.8% yoy; Jul: +8.5% yoy) that offset the decline in foreign deposits (-6.0% yoy; Jul: -7.4% yoy).

• Outstanding total loan growth charted a slightly faster pace of +5.8% yoy (Jul: +5.6% yoy), driven mainly by faster growth in businesses loans (+6.8% yoy; Jul: +6.3% yoy). In addition, net PDS issuance rebounded to RM66mn despite the higher redemptions (Jul:-RM0.2bn).

• Leading loan indicators for consumer sector slowed in August. Loans applied for passenger car loans contracted by -5.9% yoy (Jul: +19.7% yoy). Likewise, loans approved for passenger car loans contracted by -2.4% yoy (Jul: +10.5% yoy). Meanwhile, loans applied for residential properties moderated to +14.3% yoy (Jul: +28.8%), in line with slower loan approved for residential properties (+13.8% yoy; Jul: +26.9% yoy). Importantly, loans applied for personal loans and credit cards also cooled in August.

• Excess liquidity improved to RM130.4bn (Jul: RM127.4bn). Other loan liquidity indicators, such as loan-to-fund ratio and loan to deposit ratio also showed a better trend. This could be attributed to the higher growth in deposits.

• Foreign holdings of Malaysian government debt securities continued to record an outflow of –RM1.6bn (Jul: -RM1.8bn). This could be attributed to maturity of GII government bond in August (RM10.5bn). Nevertheless, the outflow pressure was significantly reduced compared to the earlier part of the year (ave. Jan-Mar 2017: -RM11.7bn). This is due to the lower composition of non-resident holdings in government bonds. Significantly, foreign holdings of MGS inched up slightly to 40.3% (Jul: 40.1%).

• Meanwhile, foreigners maintained their modest buying momentum in Malaysian equities (+RM0.3bn; Jul: +RM0.4bn).

• Despite the faster monetary growth, the moderation in leading loan indicators signifies a moderate growth trend ahead (HLIB GDP growth forecast: +5.4% in 2017). We expect BNM to stay pat on OPR for the remainder of 2017.

Source: Hong Leong Investment Bank Research - 2 Oct 2017