Monetary indicators grew at a moderate pace in June. Narrow money supply (M1) and broad money supply (M3) moderated to +3.7% YoY (May: +4.1% YoY) and +5.1% YoY (May: +5.6% YoY) respectively. Meanwhile, total leading loan indicators contracted. Non-residents increased their bond and equity holdings following major central banks’ shift to a more dovish stance.

DATA HIGHLIGHTS

Monetary indicators including narrow money supply (M1) and broad money supply (M3) grew at a moderate pace of +3.7% YoY (May: +4.1% YoY) and +5.1% YoY (May: +5.6% YoY) respectively. Meanwhile, total leading loan indicators contracted on the back of lower loan applications (-11.7% YoY; May: +13.3% YoY) and approvals (- 3.3% YoY; May: +25.4% YoY).

Total deposits also moderated during the month to +5.1% YoY (May: +5.6% YoY), as the slower growth in business (+0.5% YoY; May: +1.1% YoY) and household deposits (+5.7% YoY; May: +5.9% YoY) offset higher foreign deposits (+12.3% YoY; May: +11.1% YoY).

The household loan-deposit gap was broadly stable amid slower monthly growth in household deposits (+0.3%; May: +0.5%) and loans (+0.3%; May: +0.4%). Similarly, household deposits and loans moderated on an annual basis to +5.7% YoY (May: +5.9% YoY) and +4.9% YoY (May: +5.1% YoY) respectively.

Total loans growth eased to +4.2% YoY (May: +4.5% YoY) due to moderation in household (+4.9% YoY; May: +5.1% YoY) and business loans (+3.4% YoY; May: +3.6% YoY). Meanwhile, gross issuance of corporate bonds moderated to RM8.4bn after recording an increase of RM32.2bn due to one-off special factors in May.

Loan applications declined by -11.7% YoY (May: +13.3% YoY) due to decline in both household and business sectors. The fall in household applications resulted mainly from the sharp decline in passenger cars (-47.7% YoY; May: -6.8% YoY) following the zero-tax period in June 2018 which boosted car purchases. Business loan applications fell due to lower applications in manufacturing (-40.3% YoY; May: +11.6% YoY), wholesale trade (-21.5% YoY; May: +25.6% YoY) and real estate sectors (-31.7% YoY; May: -5.1% YoY). Meanwhile, loan approvals declined (-3.3% YoY; May: +25.4% YoY), driven by lower approvals for households and businesses. Household loan approvals were dragged by decline in approvals for passenger cars (- 43.6% YoY; May: +16.7% YoY) following high approvals during the tax holiday period. For businesses, the decline in loan approvals were mainly attributed to lower approvals in manufacturing (-46.1% YoY; May: +156.9% YoY), wholesale (-19.6% YoY; May: +73.4% YoY) and retail trade sectors (-21.2% YoY; May: +20.4% YoY).

Foreign holdings of bonds recorded a net inflow (+RM6.7bn; May: -RM4.3bn), driven by improved investors’ appetite for local bonds following the shift by major central banks to more dovish stances. Similarly, foreign equity holdings made a turnaround (+RM0.1bn; May: -RM2.0bn) after four consecutive months of net selling.

HLIB’s VIEW

On a quarterly basis, narrow money supply (M1) grew at a faster pace while broad money supply (M3) moderated. The increase in narrow money supply was due partly to the increase in currency in circulation. This could be a seasonal Raya effect. The renewed weaknesses in leading loan indicators also suggest that domestic demand activity is expected to remain modest.

Source: Hong Leong Investment Bank Research - 1 Aug 2019