Monetary indicators were slower in November. Narrow money supply (M1) growth slowed to +4.7% YoY (Oct: +4.8% YoY) while broad money supply (M3) growth moderated (+2.8% YoY; Oct: +3.4% YoY). Total leading loan indicators were stronger for the month. Meanwhile, non-residents increased their bond but reduced their equity holdings.
 

DATA HIGHLIGHTS

Monetary indicators were slower in November, as narrow money supply (M1) grew at a more moderate pace (+4.7% YoY; Oct: +4.8% YoY) while broad money supply (M3) growth slowed (+2.8% YoY; Oct: +3.4% YoY). Meanwhile, total leading loan indicators rebounded following stronger loan applications (+26.4% YoY; Oct: +3.2% YoY) and pick up in loan approvals (+2.8% YoY; Oct: -12.8% YoY).

Total deposits slowed to +2.6% YoY (Oct: +3.5% YoY) due to faster decline in business deposits (-2.5% YoY; Oct: -1.4% YoY) and moderation in foreign deposits (10.0% YoY; Oct: 13.9% YoY) amid stable household deposits growth (+5.4% YoY; Oct: +5.4% YoY).

The household loan-deposit gap widened as household loans grew by +0.5% (Oct: +0.5%) while household deposits growth increased marginally (+0.3%; Sep: +0.1%). On an annual basis, household loans growth was steady at +4.7% YoY (Sep: +4.7% YoY). Similarly, household deposits remained firm (+5.4% YoY; Oct: +5.4% YoY).

Total loans growth remained modest at +3.7% YoY (Oct: +3.7% YoY) mainly due to constant business loans growth (+2.4% YoY; Oct: +2.4% YoY) and even household loans growth (+4.7% YoY; Oct: +4.7% YoY). Meanwhile, gross issuance of corporate bonds rose to RM8.5bn (Oct: RM5.6bn).

Loan applications rebounded by +26.4% YoY (Oct: +3.2% YoY), partly driven by low base effect. The sharp increase was due to higher business loan applications (+55.0% YoY; Oct: +8.8% YoY) and rebound in household loan applications (+5.7% YoY; Oct: -1.2% YoY). The rose in business loan applications were seen in almost all sectors except mining (+42.4% YoY; Oct: +129.2% YoY) and real estate sectors (+7.4% YoY; Oct: +69% YoY). Meanwhile, loan approvals saw a positive turnaround to +2.8% YoY (Oct: -12.8% YoY), due to increase in both business and household approvals.

Non-residents increased their bond holdings by +RM7.6bn (Oct: –RM0.7bn), the largest inflow of foreign funds since September 2017. This coincided with increased liquidity injection by the FOMC which may have led to risk-taking mode. However, non-residents continued to sell local equities at a larger pace of –RM1.5bn (Oct: - RM0.5bn).

HLIB’s VIEW

Total outstanding loans were modest at +3.7% YoY in Jan-Nov 2019 (2018: +7.7% YoY). Loan demand was also weak, reflected by modest activity in loan applications during the same period (+0.8% YoY; 2018: +4.2% YoY). While there are some signs of stabilisation in lending activity amid less pessimistic global economic and financial environment, we remain cautious on the sustainability of positive momentum as trade uncertainties, geopolitical volatility may continue to lead to a volatile environment in 2020. Hence, we maintain our expectation for BNM to reduce OPR by 25bps by end- 1H 2020.
 

Source: Hong Leong Investment Bank Research - 2 Jan 2020