Monetary indicators remained mixed in February. Narrow money supply (M1) expanded (+5.2% YoY; Jan: +4.9% YoY) while broad money supply (M3) growth moderated (+3.7% YoY; Jan: +3.9% YoY). Total leading loan indicators rebounded strongly during the month partly due to difference in timing of Chinese New Year. Meanwhile, non-residents reduced both local bond and equity holdings.

DATA HIGHLIGHTS

Monetary indicators were mixed in February as growth in narrow money supply (M1) picked up (+5.2% YoY; Jan: +4.9% YoY) while broad money supply (M3) moderated (+3.7% YoY; Jan: +3.9% YoY). Meanwhile, total leading loan indicators strengthened during the month, reflected by rebound in loan applications (+40.7% YoY; Jan: -14.6% YoY), approvals (+23.2% YoY; Jan: -4.9% YoY) and disbursements (+13.2% YoY; Jan: -4.3% YoY) due to low base effect.

Deposits growth eased slightly to +2.8% YoY (Jan: +2.9% YoY) amid moderation in household (+5.0% YoY; Jan: +5.2% YoY), foreign deposits (+10.5% YoY; Jan: +12.3% YoY) and further decline in business deposits (-1.1% YoY; Jan: -0.9% YoY).

The household loan-deposit gap narrowed as loans growth was flat (Jan: +0.3% MoM) while deposits continued to grow (+0.4% MoM; Jan: +0.7% MoM). On an annual basis, both household loans (+4.4% YoY; Jan: +4.5% YoY) and deposits (+5.0% YoY; Jan: +5.2% YoY) moderated.

Total loans growth picked up (+3.9% YoY; Jan: +3.5% YoY), driven by higher business loans (+3.6% YoY; Jan: +2.5% YoY) which offset the slight moderation in household loans (+4.4% YoY; Jan: +4.5% YoY). Meanwhile, gross issuance of corporate bonds rose to RM10.6bn (Jan: RM4.1bn).

Loan applications recorded a strong turnaround (+40.7% YoY; Jan: -14.6% YoY) in business (+51.5% YoY; Jan: -9.5% YoY) and household sector (+32.8% YoY; Jan: - 18.3% YoY). Loan applications in most business sectors accelerated, except agriculture, mining and finance, insurance & business activities sectors. Household loan applications surged on the back of strong recovery in applications for passenger cars, residential properties and credit card. Meanwhile, loan approvals also rebounded (+23.2% YoY; Jan: -4.9% YoY) amid higher business (+31.3% YoY; Jan: +6.6% YoY) and household approvals (+16.8% YoY; Jan: -13.2% YoY). Business loan approvals were mainly driven by real estate and education, health & others sector while stronger household approvals mainly emanated from passenger cars, residential properties and personal use.

Non-residents’ appetite for local bonds decreased in February, resulting in -RM8.0bn outflow (Jan: +RM3.7bn) as they turned to safe-haven assets in developed markets amid the worsening spread of Covid-19. The outflow mainly stemmed from lower holdings of MGS. Similarly, non-resident holdings of local equities fell (-RM1.9bn; Jan: RM0bn).

HLIB’s VIEW

Prolonged economic inactivity extending into 2Q20 due to the 1-month MCO and uncertainty surrounding the severity of Covid-19 is expected to have an adverse impact on Malaysia’s growth. Following weaker global and domestic growth and absence of strong demand-led inflation, we maintain our expectation for BNM to reduce OPR by another 50bps in 2020 for additional policy support to the economy.

Source: Hong Leong Investment Bank Research - 1 Apr 2020