Monetary indicators were modest in October. Narrow money supply (M1) growth sustained at +4.8% YoY (Sep: +4.8% YoY) while broad money supply (M3) growth moderated (+3.4% YoY; Sep: +3.9% YoY). Most leading loan indicators were also weaker for the month. Meanwhile, non-residents reduced their bond and equity holdings.

DATA HIGHLIGHTS

Monetary indicators were moderate in October, as narrow money supply (M1) grew at a steady pace (+4.8% YoY; Sep: +4.8% YoY) while broad money supply (M3) growth moderated (+3.4% YoY; Sep: +3.9% YoY). Meanwhile, most total leading loan indicators were weaker due to steeper decline in loan approvals (-12.8% YoY; Sep: - 8.7% YoY) and loan disbursements (-7.9% YoY; Sep: - -3.5% YoY) amid slight rebound in loan applications (+3.2% YoY; Sep: -6.1% YoY).

Total deposits slowed to +3.5% YoY (Sep: +4.2% YoY) due to faster decline in business deposits (-1.4% YoY; Sep: -0.6% YoY) and softer household deposits growth (+5.4% YoY; Sep: +5.6% YoY) which offset the acceleration in foreign deposits (+13.9% YoY; Sep: +9.7% YoY).

The household loan-deposit gap widened as household loans picked up on a monthly basis (+0.5%; Sep: +0.4%) amid stable household deposits growth (+0.1%; Sep: +0.1%). On an annual basis, household loans growth rose slightly (+4.7% YoY; Sep: +4.6% YoY) while household deposits moderated (+5.4% YoY; Sep: +5.6% YoY).

Total loans growth continued to ease (+3.7% YoY; Sep: +3.8% YoY) mainly due to slower business loans growth. Household loans growth was higher at +4.7% YoY (Sep: +4.6% YoY). Meanwhile, gross issuance of corporate bonds softened to RM5.6bn (Sep: RM14.9bn) mainly due to fall in quasi-government bond issuances which saw a surge in the previous month.

Loan applications picked up slightly to +3.2% YoY (Sep: -6.1% YoY), driven by higher business loan applications (+8.8% YoY; Sep: -11.3% YoY) which offset lower household applications (-1.2% YoY; Sep: -0.8% YoY). The rebound in business loan applications were mainly driven by primary agriculture (+151.6% YoY; Sep: -23.6% YoY) and real estate sector (+69.0% YoY; Sep: +41.9% YoY). Meanwhile, loan approvals saw a sharper decline (-12.8% YoY; Sep: -8.7% YoY). Household approvals fell by -3.0% YoY (Sep: +3.0% YoY), while business approvals dropped by -23.2% YoY (Sep: -18.1% YoY). Business loan approvals declined mainly on the back of lower approvals in construction (-18.3% YoY; Sep: +55.4% YoY) and real estate sector (-22.7% YoY; Sep: +23.0% YoY).

Non-residents reduced their bond holdings by –RM0.7bn (Sep: +RM0.8bn) while non residents continued to sell local equities at a sustained pace of -RM0.5bn (Sep: - RM0.5bn).

HLIB’s VIEW

On 8th November, BNM reduced the statutory reserve requirement by 50bps from 3.5% to 3.0%. Nevertheless, we opine loan demand will continue to remain weak following continued uncertainties on global and domestic front. While there is some tentative optimism on phase 1 trade deal to be concluded in the near future, we remain cautious on the potential for US and China to resolve the structural issues and roll back tariffs in a definitive manner. We maintain our expectation for BNM to reduce OPR by 25bps by end-1H 2020

Source: Hong Leong Investment Bank Research - 2 Dec 2019