Monetary indicators were more moderate August. Both M3 and M1 grew at a slower pace. Most leading loan indicators for durable items moderated. On liquidity front, non-residents decreased their bond holdings while the pace of equity outflows slowed. As anticipated, the uptick in consumption leading loan indicators (cars and property) moderated, proving that the uptick in consumer loan data will be transitory. Hence, we maintain our expectation for OPR to remain at 3.25% in 2018.

DATA HIGHLIGHTS

Monetary indicators were more moderate in August 2018. Broad money supply (M3) moderated +6.4% YoY (Jul: +6.6% YoY) while narrow money supply (M1) decelerated to +4.4% YoY (Jul: +4.7% YoY). Growth in loan applications picked up to +5.3% YoY (Jul: +1.7% YoY). Meanwhile, loan approvals registered a small decline (-0.1% YoY; Jul: +0.6% YoY).

Household deposit moderated to +5.3% YoY (Jul: +5.5% YoY). Business deposit growth also slowed (+6.9% YoY; Jul: +7.7% YoY). However, foreign deposits rose at a faster pace of +6.8% YoY (Jul: +5.9% YoY).

Household loan-deposit gap was slightly larger in August. Deposits moderated to +5.3% YoY (Jul: +5.5% YoY) while household credit rose marginally by +6.1% YoY (Jul: +6.0% YoY).

Total loan growth grew slightly to 5.4% YoY (Jul: 5.3% YoY). This was supported by slight increase in household loan growth (+6.1% YoY; Jul: +6.0% YoY) as well as business loan growth (+3.8% YoY; Jul: +3.7% YoY). Meanwhile, gross issuance of corporate bond rose during the month (RM8.4bn; Jul: RM5.4bn), driven by issuance in the financial services sector and infrastructure & utilities sectors.

Total leading loan applications rose to +5.3% YoY (Jul: +1.7% YoY). This was driven by higher loan applications for personal use and credit card (+6.6% YoY and +5.0% YoY respectively; Jul: +5.7% YoY and +2.8% YoY respectively). However, loan applications for passenger cars moderated sharply to +9.1% YoY (Jul: +33.6% YoY) while loans applications for residential properties decelerated to +3.0% YoY (Jul: +14.5% YoY). Nevertheless, loans approved for passenger cars continued to register double digit growth (+33.7% YoY; Jul: +57.4% YoY) while loans approved for residential properties declined by -0.8% YoY (Jul: +1.8% YoY).

In the bond space, there was an outflow of non-resident holdings by -RM1.8bn, partially reversing the inflows of +RM3.3bn in the previous month. The outflow was attributed to escalating fears sparked by concerns over trade tensions and emerging market currency crises seen in Turkey and Argentina. On the equity front, non resident registered a smaller pace of outflows (-RM0.1bn; Jul: -RM1.7bn).

Nevertheless, excess liquidity was higher at RM179.9bn (Jul: RM177.8bn). Similarly, other loan liquidity indicators, such as loan-to-fund ratio and loan to deposit ratio showed similar trends.

HLIB’s VIEW

As anticipated, the uptick in consumption leading loan indicators (cars and property) moderated, proving that the uptick in consumer loan data will be transitory as consumers front-load their purchases to take advantage of the tax holiday period. Hence, we maintain our expectation for BNM to maintain OPR at 3.25%.

Source: Hong Leong Investment Bank Research - 1 Oct 2018