Monetary Conditions

• Most monetary indicators expanded at a more moderate pace in January 2018. Broad money supply (M3) rose at a slower pace (+4.6% yoy; Dec: +4.7% yoy) as well as narrow money supply (M1) (+8.8% yoy; Dec: +11.0% yoy). Growth in loan applications reversed its trend to register a strong rebound of +25.5% yoy (Dec: -2.1% yoy). Meanwhile, loan approvals also rose faster (+26.9% yoy; Dec: +17.4% yoy).

Loan & Deposit Liquidity

• Household deposit growth was lower at +2.9% yoy (Dec: 3.9% yoy) while business deposits rose faster (+9.4% yoy; Dec: +7.9% yoy). Meanwhile, foreign deposits continued to decline, at a faster rate (-9.7% yoy; Dec: -7.9% yoy).

• Household loan-deposit gap remained small in January. Deposits grew at a slower pace of +2.9% yoy (Dec: +3.9 yoy) while household credit increased at a slightly faster pace (+5.3% yoy ; Dec: +5.1% yoy).

• Outstanding total loan growth charted a slightly faster pace of +4.2% yoy (Dec: +4.1% yoy), affected by higher household loans growth (+5.3% yoy; Dec: +5.1% yoy). Business loan growth remain moderate. Corporate bond issuance also moderated to RM9.5bn (Dec: RM12.9bn) as most corporations front-loaded their issuance towards the end of 2017 to take advantage of the lower interest rate.

• Most leading loan indicators for consumer sector accelerated in January. Loans applied for residential properties strengthened to +19.3% yoy (Dec: +9.9% yoy) while loans applied for passenger cars rebounded (+10.2% yoy; Dec: -11.5% yoy). Passenger car loan approvals also turned around to register growth of +2.9% yoy (Dec: -6.9% yoy) while loans approved for residential properties also expanded further (+20.2% yoy; Dec: +15.2% yoy). Loans applied for personal use and credit card also accelerated (+43.8% yoy and +10.8% yoy respectively; Dec: +22.9% yoy and -2.3% yoy respectively) which may reflect the high cost of living among residents.

• Excess liquidity was steady at RM188.9bn (Dec: RM188.7bn). 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 third consecutive month to the tune of RM4.9bn (Dec: +RM4.0bn), partly due to improved sentiment towards global and Malaysia’s growth outlook amid expectations of further ringgit strengthening. Consequently, foreign holdings of MGS inched up further to 45.7% (Dec: 45.1%). In the equity space, foreigners accumulated significant amount of domestic equities at RM3.4bn, the highest recorded since March 2017.

• 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 2018.

Source: Hong Leong Investment Bank Research - 1 Mar 2018