Monetary indicators were mixed in June. Leading loan indicators improved due to tax holiday period. On liquidity front, non-residents reduced their bond and equity holdings further, albeit at a slower pace due to global and domestic uncertainties. We anticipate the uptick in consumer loan data to be transitory as consumers front-load their purchases to take advantage of the tax holiday period. Hence, we maintain our expectation for a more moderate GDP in 2018 OPR to remain at 3.25% in 2018.

DATA HIGHLIGHTS

Monetary indicators were mixed in June 2018. Broad money supply (M3) rose at a faster pace (+5.8% YoY; May: +5.6% YoY), while narrow money supply (M1) decelerated (+4.7% YoY; May: +6.7% YoY). Growth in loan applications rebounded to +13.3% YoY (May: -9.2% YoY). Meanwhile, loan approvals rose at a faster pace (+5.4% YoY; May: +0.6% YoY).

Household deposit grew at a faster pace (+5.4% YoY; May: +4.2% YoY) while business deposits also accelerated (+9.0% YoY; May: +8.8% YoY). Similarly, foreign deposits turned around to record a positive growth of +3.0% YoY (May: -8.9% YoY).

Household loan-deposit gap remained small in June. Deposits grew at a faster pace of +5.4% YoY (May: +4.2% YoY) as well as household credit (+5.8% YoY; May: +5.6% YoY).

Outstanding total loan growth charted a slightly faster pace of +5.0% YoY (May: +4.9% YoY), driven by increase in household loans (+5.8% YoY; May: +5.6% YoY) and steady business loans (+4.1% YoY; May: +4.0% YoY). Net issuance of corporate bond was slightly lower at RM2.1bn (May: RM3.0bn) as gross issuance of corporate bond moderated during the month (RM6.1bn; May: RM6.9bn).

Leading loan indicators for consumer sector accelerated in June. Loans applied for passenger cars recorded the fastest pace of growth since January 2013 (+43.5% YoY; May: -4.6% YoY). Loans applied for residential properties turned around to record a marginal growth of +1.2% YoY (May: -15.4% YoY). Meanwhile, loans approved for passenger cars also rebounded strongly (+58.7% YoY; May: -7.5% YoY) while loans approved for residential property continued to decline, albeit at a slower pace (-1.6% YoY; May: -13.0% YoY).

In the bond space, non-resident continued to record an outflow (-RM7.1bn; May:- RM11.1bn) due to lower risk appetite arising from global trade tensions and continued domestic policy uncertainty. On the equity front, non-resident recorded smaller pace of outflows (-RM4.9bn; May: -RM5.2bn).

Consequently, excess liquidity was lower at RM173.3bn (May: RM177.0bn). Similarly, other loan liquidity indicators, such as loan-to-fund ratio and loan to deposit ratio showed similar trends.

HLIB’s VIEW

We anticipate the uptick in consumer loan data to be transitory as consumers front load their purchases to take advantage of the tax holiday period. Hence, we maintain our expectation for GDP to be more moderate in 2018 (+5.2% YoY; 2017: +5.9% YoY) and BNM to maintain OPR at 3.25%.

Source: Hong Leong Investment Bank Research - 1 Aug 2018