Monetary indicators showed a broad-based moderation in Feb. Meanwhile, total leading loan indicators weakened. The decline in household leading loan indicators indicate continued moderation in consumption activity as consumers adjust to SST2.0. On liquidity, non-residents increased their bond holdings due to Fed’s patient stance. Nevertheless, foreigners’ equity holdings declined.

DATA HIGHLIGHTS

Monetary indicators broadly moderated in Feb. Broad money supply (M3) moderated to +6.0% YoY (Jan: +7.5% YoY) while narrow money supply (M1) slowed to +0.5% YoY (Jan: +1.6% YoY). Concurrently, both loan applications (-14.0% YoY; Jan: -5.4% YoY) and approvals (-6.7% YoY; Jan: -4.8% YoY) declined at a faster pace during the month. Total deposits rose +6.3% YoY (Jan: +6.2% YoY) due to an increase in foreign deposits (+6.6% YoY; Jan: +5.7% YoY) which offset the slower growth in household (+5.4% YoY; Jan: +5.9% YoY) and business deposits (+2.8% YoY; Jan: +3.4% YoY).

Household loan-deposit gap narrowed in February amid slow monthly household deposits growth (+0.5%; Jan: +1.0%) and even slower household loans growth (+0.1%; Jan: +0.5%). On a yearly basis, both household deposits (+5.4% YoY; Jan: +5.9% YoY) and loans (+5.2% YoY; Jan: +5.5% YoY) moderated.

Total loans growth moderated to +5.0% YoY (Jan: +5.5% YoY) due to moderation in business (+4.3% YoY; Jan: +4.8% YoY) and household loans growth (+5.2% YoY; Jan: +5.5% YoY). Nevertheless, gross issuance of corporate bonds was higher at RM9.1bn during the month (Jan: RM5.9bn).

Total leading loan applications recorded a steeper decline (14.0% YoY; Jan: -5.4% YoY) stemming from contractions in business (-20.5% YoY; Jan: -7.9% YoY) and household loan applications (-8.5% YoY; Jan: -3.5% YoY). Business loan applications largely fell due to lower applications in manufacturing (-16.8% YoY; Jan: -9.3% YoY), construction (-34.3% YoY; Jan: -28.4% YoY) and real estate sectors (-57.9% YoY; Jan: +45.6% YoY). For households, lower applications for passenger cars (-12.0% YoY; Jan: -8.1% YoY) and non-residential properties (-16.5% YoY; Jan: -10.0% YoY) contributed to the decline. On loan approvals, February saw a faster decline of -6.7% YoY (Jan: -4.8% YoY) due to lower household (-10.2% YoY; Jan: -1.5% YoY) that offset the slower decline in business approvals (-1.5% YoY; Jan: -9.1% YoY). The business sector saw lower approvals in manufacturing (-14.2% YoY; Jan: -34.1% YoY) and real estate (-38.9% YoY; Jan: +24.5% YoY) while households saw lower approvals for passenger cars (-9.7% YoY; Jan: -0.9% YoY) and residential properties (-9.0% YoY; Jan: +2.1% YoY).

Non-residents increased their bond holdings following three months of outflows (+RM4.9bn; Jan: -RM2.1bn) due mainly to Fed’s patient stance on monetary policy normalisation Meanwhile, non-residents’ equity holdings fell (-RM0.8bn; Jan: +RM1.0bn). Consequently, excess ringgit liquidity parked with BNM rose to RM179.0bn (Jan: RM175.2bn).

HLIB’s VIEW

Going forward, we maintain our expectation for 2019 GDP to be more moderate at +4.6% YoY (2018: +4.7% YoY). Private consumption is anticipated to normalise while investment is expected to moderate following an uncertain environment.

Source: Hong Leong Investment Bank Research - 1 Apr 2019