Monetary indicators were stronger in November as M1 growth rose at a faster pace while M3 growth rose. However, total leading loan indicators declined. On the liquidity front, non-residents reversed their bond holdings and pulled back on equity flows. We maintain our expectation for BNM to retain OPR at 3.25% in 2019 unless economic conditions worsen significantly.

DATA HIGHLIGHTS

Monetary indicators increased in November 2018. Broad money supply (M3) rose to +7.4% YoY (Oct: +7.1% YoY) while narrow money supply (M1) inched up to +3.3% YoY (Oct: +3.1% YoY). However, loan applications and loan approvals declined (-24.3% YoY; -6.7% YoY respectively; Oct: -0.4% YoY; +15.0% YoY respectively).

Household deposit edged lower to +5.2% YoY (Oct: +5.3% YoY) while business deposit decelerated slightly to +4.6% YoY (Oct: +4.7% YoY). Meanwhile, foreign deposits accelerated (+4.5% YoY; Oct: +1.1% YoY).

Household loan-deposit gap was stable in November due to steady growth in monthly household loans (+0.5%; Oct: +0.4%) amid moderate rise in household deposit (+0.3%; Oct: +0.3%). Annually, household deposits rose at a slower pace (+5.2% YoY; Oct: +5.3% YoY) while household credit moderated to +5.7% YoY (Sep: +5.9% YoY).

Total loans grew at a faster pace of +6.2% YoY (Oct: +6.0% YoY), driven by stronger business loan growth (+6.3% YoY; Oct: +5.6% YoY) which offset the slight moderation in household loan growth (+5.7% YoY; Oct: +5.9% YoY). Gross issuance of corporate bonds also eased to RM7.8bn (Oct: RM13.0bn).

Total leading loan applications contracted further by -24.3% YoY (Oct: -0.4% YoY, following weaker household and business loan applications. Loan applications for passenger cars fell (-29.6% YoY; Oct: -15.4% YoY) while loan applications for residential properties declined by -10.8% YoY, reversing the growth in the previous month (+6.6% YoY). Loan approvals also contracted by -6.7% YoY (Oct: +15.0% YoY), attributed to drop in passenger car loan approvals (-19.8% YoY; Oct: +1.0% YoY) and residential properties (-5.2% YoY; Oct: +13.9% YoY).

In the bond space, non-resident holdings reversed to register an outflow of –RM4.9bn (Oct: +RM5.4bn) due to global and domestic factors. Externally, slower economic activity, and political uncertainties (Brexit, EU-Italy budget tension) led to higher risk aversion. On the local front, expectations of higher fiscal deficit and lukewarm comments from international credit rating agencies also led to investors’ cautious attitude towards Malaysia. Meanwhile on the equity front, non-residents pulled back on their holdings (Nov: -RM0.7bn; Oct: -RM1.5bn).

Outstanding ringgit liquidity parked with BNM was slightly lower at RM186.1bn (Oct: RM190.3bn).

HLIB’s VIEW

The decline in consumption leading loan indicators is consistent with expectations of slower consumption activity as consumers front-loaded their purchases in Jun – Aug 2018. Businesses are also registering decline in loans applications which could indicate slower growth going forward. Nevertheless, we maintain our expectation for BNM to retain OPR at 3.25% in 2019 and expect no changes in SSR unless global economic and liquidity conditions worsen significantly.

Source: Hong Leong Investment Bank Research - 2 Jan 2019