Monetary indicators were stronger in December. Narrow money supply (M1) and broad money supply (M3) growth accelerated to +5.8% YoY (Nov: +4.7% YoY) and +3.5% YoY (Nov: +2.8% YoY) respectively. Total leading loan indicators were mixed for the month. Meanwhile, non-residents continued to increase their bond but reduced their equity holdings.

DATA HIGHLIGHTS

Monetary indicators were stronger in December. Narrow money supply (M1) expanded by +5.8% YoY (Nov: +4.7% YoY) while broad money supply (M3) grew +3.5% YoY (Nov: +2.8% YoY). Meanwhile, total leading loan indicators were mixed for the month following deceleration in loan applications (+5.5% YoY; Nov: +26.4% YoY) and increase in loan approvals (+7.6% YoY; Nov: +2.8% YoY)

Deposits growth rose by +2.8% YoY (Nov: +2.6% YoY) driven by higher foreign deposits (+15.8% YoY; Nov: +10.0% YoY) and slight uptick in household deposits (+5.5% YoY; Nov: +5.4% YoY) amid slower decline in business deposits (-1.4% YoY; Nov: -2.5% YoY).

The household loan-deposit gap remained moderate as household deposits increased by +0.6% MoM (Nov: +0.3% MoM) while household loans growth sustained at +0.5% MoM (Nov: +0.5% MoM) on a monthly basis. Similarly, on an annual basis, household deposits growth picked up by +5.5% YoY (Nov: +5.4% YoY) while household loans remained firm (+4.7% YoY; Nov: +4.7% YoY).

Total loans growth quickened to +3.9% YoY (Nov: +3.7% YoY) amid higher business loans growth (+2.7% YoY; Nov: +2.4% YoY) and stable household loans growth (+4.7% YoY; Nov: +4.7% YoY). Meanwhile, gross issuance of corporate bonds rose to RM11.1bn (Nov: RM8.5bn).

Loan applications decelerated to +5.5% YoY (Nov: +26.4% YoY) as business loan applications slowed sharply to +0.3% YoY (Nov: +55.0% YoY), offsetting the higher growth in household loan applications (+9.7% YoY; Nov: +5.7% YoY). Almost all sectors recorded weaker growth in business loan applications except the real estate sector (+37.4% YoY; Nov: +7.4% YoY). For households, growth was mainly driven by loan applications for residential properties (+15.1% YoY; Nov: +8.3% YoY). Meanwhile, loan approvals accelerated (+7.6% YoY; Nov: +2.8% YoY), due to increase in both business (+10.5% YoY; Nov: +2.4% YoY) and household loan approvals (+4.6% YoY; Nov: +3.3% YoY).

Non-residents continued to increase their bond holdings (+RM7.5bn; Nov: +RM7.6bn), with bulk of the increase originating from higher holdings of MGS. The steady foreign demand for local bonds came amid the cooling of US-China trade tensions. However, non-residents continued to sell local equities, albeit at a smaller pace of –RM1.1bn (Nov: -RM1.5bn).

HLIB’s VIEW

In 2019, total outstanding loans was more moderate at +3.9% YoY (2018: +7.7% YoY), consistent with weaker loan demand as loan applications slowed during the year (+1.0% YoY; 2018: +3.3% YoY). While our current OPR forecast is 2.75% until the end of 2020, recent concerns on the spread of 2019-nCOv have brought new downside risks to the global and financial market. Hence, if the current coronavirus outbreak becomes more severe or persistent, this could lead to BNM further lowering the interest rate to mitigate the negative impact.

Source: Hong Leong Investment Bank Research - 3 Feb 2020