Monetary Conditions

• Most monetary indicators continued to expand at favourable pace in November. Broad money supply (M3) rose (+5.2% yoy; Oct: +5.1% yoy) while narrow money supply (M1) grew at a slightly slower but commendable pace of +9.9% yoy (Oct: +11.7% yoy). Growth in loan applications accelerated to +15.8% yoy (Oct: +12.8% yoy), similar to loan approvals which rebounded by +22.3% yoy (Oct: -2.2% yoy). Nevertheless, loan disbursements moderated sharply to +1.8% yoy (Oct: +8.4% yoy). BNM foreign reserves increased by +US0.4bn to US$101.9bn in November (Oct: +US$0.3bn; US$101.5bn).

Loan & Deposit Liquidity

• Household deposit growth remained steady at 3.8% yoy (Oct: +3.8% yoy) while business deposits continued to grow strongly (+11.1% yoy; Oct: +11.2% yoy). Meanwhile, foreign deposits continued to decline (-9.9% yoy; Oct: -6.3% yoy).

• Household loan-deposit gap remained small in November. Deposits grew at a steady pace of +3.8% yoy while household credit also maintained its pace of +5.1% yoy (Oct: +5.1% yoy).

• Outstanding total loan growth charted a slower pace of +3.9% yoy (Oct: +4.6% yoy), affected primarily by slower business loans growth (+2.3% yoy; Oct: +4.0% yoy) following broad-based moderation across the sectors. Corporate bond issuance maintained its robust momentum in November, with gross issuance at RM12.0bn (Oct: RM13.7bn). However, redemptions were also high at RM11.5bn (Oct: RM5.6bn), leading net corporate issuance to moderate to RM0.6bn (Oct: RM8.1bn).

• Most leading loan indicators for consumer sector improved in November. Loans applied for residential properties continued to grow by +19.1% yoy (Oct: +18.9% yoy), while loans applied for personal use rose strongly (27.4% yoy; Oct: 11.4% yoy). However, passenger car continued to register a contraction (-6.5% yoy; Oct: -5.3% yoy). Loans approved for residential properties grew strongly by 18.2% yoy (Oct: 14.5% yoy). In addition, loans approved for passenger car loans also rose at a faster pace (12.4% yoy; Oct: +3.7% yoy).

• Excess liquidity improved further to RM139.4bn (Oct: 137.7bn). Other loan liquidity indicators, such as loan-to fund ratio and loan to deposit ratio remained relatively steady.

• In the bond space, non-resident recorded an inflow of RM6.6bn (Oct: -RM2.2bn), partly due to stronger-than expected 3Q 2017 GDP figures (6.3%; 5.8% yoy) and expectations of policy interest rate normalisation. Consequently, foreign holdings of MGS inched higher to 44.3% (Oct: 42.7%). Foreigners continued to sell Malaysian equities (-RM0.1bn; Oct: - RM0.3bn).

• We expect BNM to normalise the policy rate by 25bps as early as January 2018, on account of the entrenched economic growth which may be sustainable into 2018. The risk of prolonged period of negative real interest rate amid property imbalances also weigh on BNM decision.

Source: Hong Leong Investment Bank Research - 8 Jan 2018