Monetary indicators remained mixed in January as M3 growth moderated while M1 rose. Meanwhile, total leading loan indicators were weaker for the month. On liquidity, non-residents continued to pull back on their bond holdings but increased their equity holdings. We maintain our expectation for BNM to retain OPR at 3.25% in 2019 unless external economic conditions worsen significantly.

DATA HIGHLIGHTS

Monetary indicators were mixed in January 2019. Broad money supply (M3) moderated to +7.5% YoY (Dec: +8.0% YoY) while narrow money supply (M1) rose at a faster pace of +1.6% YoY (Dec: +1.1% YoY). Meanwhile, loan applications reversed to a decline of -5.4% YoY (Dec: +4.8% YoY) while approvals fell by -4.8% YoY (Dec: -10.1% YoY) respectively.

Total deposits moderated to +6.1% YoY (Dec: +7.5% YoY) due to slower growth in business deposits (+3.4% YoY; Dec: +6.7% YoY) which offset the rise in household (+5.9% YoY; Dec: +5.3% YoY) and foreign deposits (+5.8% YoY; Dec: +4.1% YoY).

Household loan-deposit gap narrowed slightly in January as monthly growth in household deposits picked up (+1.0%; Dec: +0.5%) while household loans remained steady (+0.5%; Dec: +0.5%). Household deposits grew at a faster pace from a year ago (+5.9% YoY; Dec: +5.3% YoY) while household loans moderated slightly (+5.5% YoY; Dec: +5.6% YoY).

Total loan growth moderated to +5.5% YoY (Dec: +5.6% YoY) amid moderations in both business (+4.8% YoY; Dec: +5.4% YoY) and household loans (+5.5% YoY; Dec: +5.6% YoY). Gross issuance of corporate bonds rose modestly to RM5.9bn (Dec: RM5.8bn).

Total leading loan applications fell back to negative territory (-5.4% YoY; Dec: +4.8% YoY) amid contractions in both business (-7.9% YoY; Dec: +12.5% YoY) and household loan applications (-3.5% YoY; Dec: -0.7% YoY). The drop in business loan applications was mainly due to lower applications in manufacturing, construction and finance, insurance & business activities sectors. Loan applications for passenger cars declined at a slower pace (-8.1% YoY; Dec: -20.9% YoY) while applications for residential properties moderated (+4.7% YoY; Dec: +6.0% YoY). Meanwhile, loan approvals continued to decline (-4.8% YoY; Dec: -10.1% YoY). On the business side, lower loan approvals were seen in manufacturing -34.1% YoY; Dec: +25.5% YoY) and construction sectors (-39.8% YoY; Dec: -44.9% YoY). In the household space, loan approvals for cars contracted (-0.9% YoY; Dec: -12.1% YoY) while loan approvals for mortgages eased (+2.1% YoY; Dec: +4.0% YoY).

In the bond space, non-residents reduced their holdings for a third consecutive month by –RM2.1bn (Dec: -RM2.0bn) due partly to redemption of treasury bills. Meanwhile, non-residents’ holdings on equity rebounded (+RM1.0bn; Dec: -RM1.0bn).

Excess ringgit liquidity parked with BNM was lower at RM174.6bn (Dec: RM184.6bn).

HLIB’s VIEW

Going forward, we expect consumption activity to moderate from 2018 following front loading purchases which pulled consumption activity forward in 2018. Nevertheless, we expect consumption to remain supported by continued employment gains and government assistance. We maintain our expectation for BNM to retain OPR at 3.25% and expect SSR to remain unchanged in 2019.

Source: Hong Leong Investment Bank Research - 1 Mar 2019