Monetary Conditions

• Most monetary indicators expanded at a more moderate pace in December. Broad money supply (M3) rose at a slower pace (+4.7% yoy; Nov: +5.2% yoy) while narrow money supply (M1) grew at a faster pace of 11.0% yoy (Nov: +9.9% yoy). Growth in loan applications reversed its trend to register a decline of -2.1% yoy (Nov: +15.8% yoy). Meanwhile, loan approvals moderated to +15.4% yoy (Nov: +22.3% yoy).

Loan & Deposit Liquidity

• Household deposit growth was slightly higher at 3.9% yoy (Nov: +3.8% yoy) while business deposits moderated after growing strongly in the previous three months (+7.9% yoy; Nov: +11.1% yoy). Meanwhile, foreign deposits continued to decline, albeit at a slower rate (-7.9% yoy; Nov: -9.9% yoy).

• Household loan-deposit gap remained small in December. Deposits grew at a slightly faster pace of +3.9 yoy (Nov: +3.8% yoy) while household credit weakened slightly (+5.1% yoy ; Nov: +5.2% yoy).

• Outstanding total loan growth charted a faster pace of +4.1% yoy (Nov: +3.9% yoy), affected primarily by higher business loans growth (+2.8% yoy; Nov: +2.3% yoy). Corporate bond issuance also rose to RM12.9bn (Nov: RM12.0bn), as it maintained its robust momentum in December. For the year, corporate bond issuance hit a record RM122.0bn, outpacing the previous peak of RM121.2bn in 2012.

• Most leading loan indicators for consumer sector moderated in December. Loans applied for residential properties weakened to +9.9% yoy (Nov: +19.1% yoy) while loans applied for personal use slowed, but remained strong at +22.9% yoy (Nov: +27.4% yoy). However, passenger car loan applications continued to register a contraction (-11.5% yoy; Nov: -6.5% yoy). Loans approved for residential properties moderated, but remained strong at +15.2% yoy (Nov: +18.2% yoy). Loans approved for passenger car loans declined by -6.9% yoy after recording a strong rebound in the previous month (Nov: +12.4% yoy).

• Excess liquidity cooled to RM133.2bn (Nov: RM139.4bn). Other loan liquidity indicators, such as loan-to-fund ratio and loan to deposit ratio showed similar trends.

• In the bond space, non-resident recorded an inflow for the second consecutive month to the tune of RM4.0bn (Nov: +RM6.6bn), partly due to improved sentiment towards Malaysia’s growth outlook and expectations of ringgit appreciation. Consequently, foreign holdings of MGS inched up further to 45.1% (Nov: 44.3%). Foreigners returned to the market to become net buyers pf Malaysian equities (+RM0.9bn; Nov: -RM0.1bn).

• The slight deceleration in quarterly data indicates 4Q GDP could be slightly slower than 3Q GDP. In 2018, as growth and inflation is expected to be more moderate, we think BNM will maintain the OPR at 3.25% for the rest of 2018. Nevertheless, should growth and inflation surprise on the upside, BNM could increase the OPR by 25bps in 2H 18.

Source: Hong Leong Investment Bank Research - 2 Feb 2018