Monetary indicators were mixed in March as narrow money supply (M1) picked up (+2.5% YoY; Feb: +0.5% YoY) while broad money supply (M3) moderated (+4.6% YoY; Feb: +6.0% YoY). Meanwhile, total leading loan indicators improved. On the liquidity front, non-residents increased their bond holdings as global central banks, especially FOMC, reinforced their patient monetary policy stance for 2019. Nevertheless, non-residents decreased their equity holdings.

DATA HIGHLIGHTS

Monetary indicators were mixed in March. Broad money supply (M3) moderated to +4.6% YoY (Feb: +6.0% YoY) while narrow money supply (M1) rose at a faster pace of +2.5% YoY (Feb: +0.5% YoY). Meanwhile, total leading loan indicators improved on the back of slower decline in loan applications (-6.0% YoY; Feb: -14.0% YoY) and rebound in loan approvals (+6.3% YoY; Feb: -6.7% YoY).

Total deposits moderated to +5.3% YoY (Feb: +6.3% YoY) due to a decline in business deposits (-0.1% YoY; Feb: +2.8% YoY) following high base effect and moderation in household deposits (+5.2% YoY; Feb: +5.4% YoY) which offset the faster increase in foreign deposits (+7.0% YoY; Feb: +6.6% YoY).

Household loan-deposit gap narrowed further in March, driven by faster monthly growths in both household deposits (+0.6%; Feb: +0.5%) and loans (+0.4%; Feb: +0.1%). On an annual basis, household deposits moderated (+5.2% YoY; Feb: +5.4% YoY) while household loans ticked marginally higher (+5.3% YoY; Feb: +5.2% YoY).

Total loans growth eased slightly to +4.9% YoY (Feb: +5.0% YoY) due to moderation in business loans (+4.1% YoY; Feb: +4.3% YoY) amid higher household loans growth (+5.3% YoY; Feb: +5.2% YoY). Nevertheless, gross issuance of corporate bonds increased to RM11.3bn during the month (Feb: RM9.1bn).

Loan applications contracted at a slower pace (-6.0% YoY; Feb: -14.0% YoY) amid slower contractions in business (-8.5% YoY; Feb: -20.5% YoY) and household loan applications (-3.9% YoY; Feb: -8.6% YoY). The decline in business loan applications may be attributed to lower applications in manufacturing (-13.1% YoY; Feb: -16.8% YoY), real estate (-24.3% YoY; Feb: -57.9% YoY) and construction sectors (-7.7% YoY; Feb: -34.3% YoY). Loan applications for households declined due to lower applications for passenger cars (-15.3% YoY; Feb: -12.0% YoY). Meanwhile, loan approvals rebounded in March (+6.3% YoY; Feb: -6.7% YoY), driven by recoveries in business (+12.0% YoY; Feb: -1.5% YoY) and household loan approvals (+1.3% YoY; Feb: -10.2% YoY). Business loan approvals were mainly driven by higher approvals in the wholesale & retail trade, and restaurant & hotels sector (+48.1% YoY; Feb: +22.7% YoY), while higher approvals for passenger cars (+10.4% YoY; Feb: -9.7% YoY) and non-residential properties (+65.2% YoY; Feb: +0.7% YoY) supported growth of household loan approvals.

Foreigners increased their bond holdings for a second consecutive month albeit at a slower pace (+RM3.0bn; Feb: +RM4.9bn), due mainly to Fed’s patient monetary policy stance and constructive progress in US-China trade negotiations. Meanwhile, foreigners reduced their holdings of equity (-RM1.6bn; Feb: -RM0.8bn).

HLIB’s VIEW

Going forward, private consumption is anticipated to normalise further while investment activity is expected to remain moderate pending progress of US-China trade negotiations.

Source: Hong Leong Investment Bank Research - 2 May 2019