Monetary Conditions

• Monetary indicators recorded a mixed development in September. Broad money supply (M3) grew at a slower pace (+5.0% yoy; Aug: +5.3% yoy). Meanwhile, narrow money supply (M1) growth grew slightly higher at +11.1% yoy (Aug: +10.9% yoy). Growth in loan applications moderated sharply to +0.3% yoy (Aug: +4.1% yoy) while loan approvals declined by -1.7% yoy (Aug: +9.9% yoy). Likewise, loan disbursement contracted by -2.5% yoy (Aug: +15.8% yoy). BNM foreign reserves increased by +US$0.7bn (Aug: +US$1.1bn) to US$101.2bn (Aug: US$100.5bn).

Loan & Deposit

• Household loan-deposit gap remained small in September. Deposits grew at a slower pace of +3.7% yoy (Aug: +4.2% yoy) while household credit remained steady at +5.0% yoy.

• Slower deposits (+4.6% yoy; Aug: +5.1% yoy) reflected the slowdown in household deposits (+3.7% yoy; Aug: +4.2% yoy) and foreign deposits (-9.0% yoy; Aug: -6.0% yoy) that offset the increase in business deposits (+11.3% yoy; Aug: +8.8% yoy).

• Outstanding total loan growth charted a slower pace of +5.2% yoy (Aug: +5.8% yoy), driven primarily by slower businesses loans growth (+5.4% yoy; Aug: +6.8% yoy). Nevertheless, net corporate bond issuance accelerated to RM13.3bn (Aug: RM0.3bn).

• Leading loan indicators for consumer sector slowed in September. Loans applied for passenger car contracted further by -13.9% yoy (Aug: -5.9% yoy). Likewise, loans approved for passenger car also contracted further by -15.9% yoy (Aug: -2.4% yoy). Meanwhile, loans applied for residential properties continued to moderate to +7.2% yoy (Aug: +14.3% yoy), in line with slower loans approved for residential properties (+2.8% yoy; Aug: +13.8% yoy).

Liquidity

• Excess liquidity improved to RM133.3bn (Aug: RM130.4bn). 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 higher monthly growth in deposits.

• Foreign investors scooped up Malaysian government debt securities in September to record the largest inflow for the year (RM10.1bn; Aug: -RM1.6bn). This reflects the ease of geopolitical tensions and strong domestic economic momentum. Consequently, foreign holdings of MGS inched up further to 42.8% (Aug: 40.3%). However, risk aversion towards emerging market economies re-emerged since late September on renewed expectations of US Fed tightening, coupled with progress of President Trump’s tax plan.

• Foreigners turned net seller in Malaysian equities as the outflows towards the end of the month outpaced the inflows in early September (-RM0.8bn; Aug: +RM0.3bn).

• 3Q17 economic data have been generally stronger, indicating 3Q GDP growth could be faster than that of 2Q GDP. Nevertheless, the moderation in loan indicators signifies a more moderate growth trend ahead. We expect BNM to stay pat on OPR for the remainder of 2017.

Source: Hong Leong Investment Bank Research - 1 Nov 2017