Monetary indicators showed a broad-based moderation in August. Meanwhile, total leading loan indicators were weaker for the month. Non-residents also reduced their bond and equity holdings as the re-escalation of US-China trade tensions led to increasingly cautious investor sentiment.

DATA HIGHLIGHTS

Monetary indicators broadly moderated in August. Narrow money supply (M1) and broad money supply (M3) growth moderated to +3.8% YoY (Jul: +4.5% YoY) and +4.2% YoY (Jul: +4.9% YoY) respectively. Meanwhile, total leading loan indicators were weaker due to decline in loan applications (-0.3% YoY; Jul: +0.5% YoY) and deceleration in loan approvals (+1.7% YoY; Jul: +11.2% YoY).

Total deposits moderated to +4.6% YoY (Jul: +4.9% YoY) due to softer growth in household (+5.7% YoY; Jul: +5.8% YoY), foreign deposits (+7.9% YoY; Jul: +9.4% YoY) and marginal decline in business deposits (-0.1% YoY; Jul: +0.3% YoY).

The household loan-deposit gap widened as the monthly growth in household loans picked up (+0.5%; Jul: +0.3%) amid stable household deposits growth (+0.2%; Jul: +0.2%). On an annual basis, household loan and deposit eased slightly to +4.6% YoY (Jul: +4.7% YoY) and +5.7% YoY (Jul: +5.8% YoY) respectively.

Total loans growth was sustained at +3.9% YoY (Jul: +3.9% YoY). Household loans moderated slightly (+4.6% YoY; Jul: +4.7% YoY) while business loans growth remain steady at +2.5% YoY (Jul: +2.5% YoY). Meanwhile, gross issuance of corporate bonds softened to RM4.6bn (Jul: RM6.0bn).

Loan applications reversed to a decline (-0.3% YoY; Jul: +0.5% YoY) following high base effect from increased consumption activity during the GST-holiday period in Jun Aug 2018. This was reflected by steeper decline in household loan applications (- 8.9% YoY; Jul: -7.5% YoY), dragged by lower applications for passenger cars (-24.4% YoY; Jul: -32.3% YoY) and credit card (-20.5% YoY; Jul: -21.7% YoY). Business loan applications moderated (+10.9% YoY; Jul: +13.5% YoY) on the back of slower growth in manufacturing sector (+3.2% YoY; Jul: +5.2% YoY) and decline in education, health & other sectors (-75.4% YoY; Jul: +7.3% YoY). Meanwhile, loan approvals decelerated (+1.7% YoY; Jul: +11.2% YoY) due to decline in household approvals (- 2.8% YoY; Jul: +5.5% YoY) and moderation in business approvals (+8.0% YoY; Jul: +19.3% YoY). In the business sector, approvals decelerated for manufacturing sector (+3.3% YoY; Jul: +39.7% YoY) and declined in real estate sector (-23.8% YoY; Jul: +45.6% YoY).

Foreign holdings of bonds recorded a slight outflow of –RM0.1bn, reversing two consecutive months of net inflows (Jul: +RM5.8bn; Jun: +RM6.7bn) as the re escalation of US-China trade tensions in August deteriorated foreign appetite for local bonds. Similarly, foreigners reduced their holdings of equity (-RM2.6bn; Jul: RM0.0bn). This was the largest recorded outflow since June 2018.

HLIB’s VIEW

Going forward, ongoing trade tension and continued uncertainty surrounding FTSE Russell’s decision to retain Malaysia on its watch list for an additional six months (until March 2020) may continue to limit foreign inflows of bonds and equities. On OPR, against the background of rising risks on the global front, we maintain our expectation for BNM to have an easing bias and reduce OPR by 25bps within the next six months.

Source: Hong Leong Investment Bank Research - 1 Oct 2019