Monetary indicators were mixed in July. Narrow money supply (M1) grew +4.5% YoY (Jun: +3.7% YoY) while broad money supply (M3) moderated to +4.9% YoY (Jun: +5.1% YoY). Meanwhile, total leading loan indicators improved slightly. On bond and equity flows, non-residents increased their bond holdings at a slower pace, while equity flows were unchanged.

DATA HIGHLIGHTS

Monetary indicators were mixed in July, as narrow money supply (M1) grew +4.5% YoY (Jun: +3.7% YoY) while broad money supply (M3) growth moderated to +4.9% YoY (Jun: +5.1% YoY). Meanwhile, total leading loan indicators improved due to rebound in loan applications (+0.5% YoY; Jun: -11.3% YoY) and approvals (+11.2% YoY; Jun: -3.0% YoY).

Total deposits moderated slightly to +4.9% YoY (Jun: +5.1% YoY). The slower growth in business (+0.3% YoY; Jun: +0.5% YoY) and foreign deposits (+9.4% YoY; Jun: +12.3% YoY) offset the marginal rise in household deposits (+5.8% YoY; Jun: +5.7% YoY).

The household loan-deposit gap widened due to slower monthly growth in household deposits (+0.2%; Jun: +0.3%) amid stable household loans growth (+0.3%; Jun: +0.3%). However, on an annual basis, household deposits growth picked up (+5.8% YoY; Jun: +5.7% YoY) while household loans moderated (+4.7% YoY; Jun: +4.9% YoY).

Total loans growth moderated to +3.9% YoY (Jun: +4.2% YoY) due to slower business (+2.5% YoY; Jun: +3.4% YoY) and household loans growth (+4.7% YoY; Jun: +4.9% YoY). Meanwhile, gross issuance of corporate bonds moderated to RM6.0bn (Jun: RM8.4bn).

The rebound in loan applications (+0.5% YoY; Jun: -11.3% YoY) stemmed from reversal in business sector (+13.5% YoY; Jun: -13.3% YoY) amid continued decline in household sector (-7.5% YoY; Jun: -9.6% YoY). Business loan applications were driven by higher applications in manufacturing (+5.2% YoY; Jun: -40.2% YoY), construction (+15.9% YoY; Jun: +7.6% YoY) and finance, insurance and business activities sector (+51.0% YoY; Jun: +28.6% YoY). Household applications continued to be dragged by lower applications for passenger cars (-32.3% YoY; Jun: -47.3% YoY) due to high base effect during GST-holiday period in Jun-Aug 2018. Similarly, loan approvals rebounded (+11.2% YoY; Jun: -3.0% YoY) on the back of higher approvals in business and household sectors. For businesses, approvals were mainly driven by manufacturing (+39.7% YoY; Jun: -45.6% YoY) and finance, insurance and business activities sector (+145.7% YoY; Jun: -7.1% YoY), while household approvals were driven by approvals for residential properties (+21.2% YoY; Jun: +13.7% YoY).

Foreign holdings of bonds recorded a smaller net inflow of +RM5.8bn (Jun: +RM6.7bn) as monetary easing by central banks increased foreign demand. Meanwhile, foreign equity holdings were unchanged (RM0.0bn; Jun: +RM0.1bn).

HLIB’s VIEW

We maintain our expectation for consumption to moderate in 2H 2019, consistent with lower household loan growth and loan application due partly to high base effect from GST tax holiday period. Following high downside risk in external environment, we maintain our expectation for BNM to reduce OPR by 25bps as early as November 2019 MPC meeting.

Source: Hong Leong Investment Bank Research - 3 Sept 2019