Monetary indicators grew at a faster pace in May. Narrow money supply (M1) and broad money supply (M3) rose by +4.1% YoY (Apr: +2.2% YoY) and +5.2% YoY (Apr: +4.9% YoY) respectively. Meanwhile, total leading loan indicators improved, aided by low base effect. On the liquidity front, non-residents continued to reduce their bond and equity holdings as the escalation in US China trade tensions led to increasingly cautious investor sentiment.

DATA HIGHLIGHTS

Monetary indicators were stronger in May as seen by faster growth in broad money supply (M3) (+5.2% YoY; Apr: +4.9% YoY) and narrow money supply (M1) (+4.1% YoY; Apr: +2.2% YoY). Aided by low base effect, total leading loan indicators improved, driven by accelerations in loan applications (+14.8% YoY; Apr: +5.7% YoY) and approvals (+24.7% YoY; Apr: +5.0% YoY).

Total deposits were sustained during the month (+5.5% YoY; Apr: +5.5% YoY), as higher deposits by households (+5.8% YoY; Apr: +5.7% YoY) and foreigners (+11.1% YoY; Apr: +9.1% YoY) offset the moderation in business deposits (+1.4% YoY; Apr: +1.8% YoY).

The household loan-deposit gap was slightly wider due to moderation in monthly growth of household deposits (+0.5%; Apr: +0.9%) amid sustained household loan growth (+0.4%; Apr: +0.4%). However, on an annual basis, household deposits and loans edged higher by +5.8% YoY (Apr: +5.7% YoY) and +5.3% YoY (Apr: +5.2% YoY) respectively.

Total loans growth rose +4.6% YoY (Apr: +4.5% YoY), driven by higher household (+5.3% YoY; Apr: +5.2% YoY) and business loans (+3.4% YoY; Apr: +3.2% YoY). Meanwhile, gross issuance of corporate bonds rose to RM32.2bn (Apr: RM11.1bn) mainly due to MOF’s SPV Urusharta Jamaah Sdn Bhd sukuk for the purpose of financing the acquisition of Lembaga Tabung Haji’s underperforming assets.

Aided by low base effect, loan applications accelerated (+14.8% YoY; Apr: +5.7% YoY) due to higher household (+16.4% YoY; Apr: +0.6% YoY) and business loan applications (+12.8% YoY; Apr: +11.8% YoY). The jump in household applications were mainly attributed to higher applications for residential properties (+36.6% YoY; Apr: +12.2% YoY) and non-residential properties (+13.4% YoY; Apr: -0.1% YoY). Business applications were driven by higher applications in wholesale & retail trade (+33.7% YoY; Apr: +4.8% YoY) and finance, insurance & business activities sectors (+14.2% YoY; Apr: -33.2% YoY). Meanwhile, loan approvals also accelerated (+24.7% YoY; Apr: +5.0% YoY) on the back of higher household (+23.0% YoY; Apr: +8.8% YoY) and business approvals (+26.6% YoY; Apr: +0.7% YoY). Household approvals were mostly driven by passenger cars (+16.7% YoY; Apr: +7.0% YoY), residential (+32.4% YoY; Apr: +13.3% YoY) and non-residential properties approvals (+11.1% YoY; Apr: +5.2% YoY), while business approvals in manufacturing sector (+155.7% YoY; Apr: -45.7% YoY) rebounded due to low base effect.

Non-residents continued to reduce their bond (-RM4.3bn; Apr: -RM8.3bn) and equity holdings (-RM2.0bn; Apr: -RM1.4bn) following escalations in US-China trade tensions during the month which eroded investors’ appetite for local bonds and equities.

HLIB’s VIEW

Going forward, prolonged uncertainty in the global environment and uncertainty on the World Government Bond Index decision on Malaysia are expected to weigh on foreign inflows. While we expect BNM to maintain the OPR at 3.00%, we do not discount the possibility of BNM reducing OPR should the global environment worsen further, negatively affecting the domestic economy.

Source: Hong Leong Investment Bank Research - 1 Jul 2019