Monetary indicators were mixed in January. Narrow money supply (M1) moderated to +4.9% YoY (Dec: +5.8% YoY) while broad money supply (M3) growth expanded by +3.9% YoY (Dec: +3.5% YoY). Total leading loan indicators were weaker for the month. Due to on-going global and domestic uncertainty, we expect BNM to reduce the OPR by 25bps in 1H2020, as early as Mar 2020.

DATA HIGHLIGHTS

Monetary indicators were mixed in January, as narrow money supply (M1) moderated to +4.9% YoY (Dec: +5.8% YoY) while broad money supply (M3) expanded by +3.9% YoY (Dec: +3.5% YoY). Reserve money contracted by -0.5% YoY (Dec: +2.6% YoY) following the SRR cut in Nov 2019. A similar pattern was also observed after the previous SRR cut in Feb 2016. Meanwhile, total leading loan indicators weakened during the month amid lower loan applications (-14.6% YoY; Dec: +5.5% YoY), approvals (-4.9% YoY; Dec: +7.6% YoY) and disbursements (-4.2% YoY; Dec: +0.7% YoY).

Deposits growth was steady at +2.9% YoY (Dec: +2.9% YoY) amid moderation in household (+5.2% YoY; Dec: +5.5% YoY) and foreign deposits (+12.3% YoY; Dec: +15.8% YoY) and smaller decline in business deposits (-0.9% YoY; Dec: -1.4% YoY). The household loan-deposit gap narrowed slightly as household loans slowed to +0.3% MoM (Dec: +0.5% MoM) while household deposits grew +0.7% MoM (Dec: +0.6% MoM). On an annual basis, both household loans (+4.5% YoY; Dec: +4.7% YoY) and deposits (+5.2% YoY; Dec: +5.5% YoY) moderated.

Total loans growth eased to +3.5% YoY (Dec: +3.9% YoY) amid lower business (+2.5% YoY; Dec: +3.3% YoY) and household loans growth (+4.5% YoY; Dec: +4.7% YoY). Meanwhile, gross issuance of corporate bonds fell to RM4.1bn (Dec: RM11.1bn).

Loan applications sank -14.6% YoY (Dec: +5.5% YoY) following the drop in business (-9.5% YoY; Dec: +0.3% YoY) and household loan applications (-18.3% YoY; Dec: +9.7% YoY), which could possibly indicate weak sentiment. Most sectors recorded weaker growth in business loan applications except finance, insurance and business activities (+73.3% YoY; Dec: -44.6% YoY). For households, growth mainly fell on the back of lower applications for passenger cars and residential properties. Loan approvals also contracted (-4.9% YoY; Dec: +7.6% YoY) amid moderation in business approvals (+6.6% YoY; Dec: +10.5% YoY) and sharp drop in household approvals (- 13.2% YoY; Dec: +4.6% YoY), mainly due to lower approvals for residential properties (-14.2% YoY; Dec: +8.5% YoY).

Non-residents continued to increase their bond holdings (+RM3.7bn; Dec: +RM7.5bn). Foreign demand for local bonds slowed on the heels of worsening Covid-19 outbreak but remained supported by OPR cut in January. Meanwhile, non-resident holdings of local equities were unchanged (RM0.0bn; Dec: -RM1.1bn).

HLIB’s VIEW

The rising number of Covid-19 outbreaks in countries outside of China has led to increasing concerns of a global pandemic, leading to fears of further supply disruptions to global growth. In Malaysia, the country’s monarch has appointed Tan Sri Dato’ Muhyiddin Yassin as the 8th Prime Minister. Nevertheless, we opine that uncertainty remains as political priorities may continue to shift. We expect BNM to reduce the OPR by 25bps in 1H20, as early as March 2020.

Source: Hong Leong Investment Bank Research - 9 Mar 2020