Monetary indicators remained mixed in Mar. Narrow money supply (M1) expanded (+7.9% YoY; Feb: +5.2% YoY) while broad money supply (M3) growth was steady (+3.7% YoY; Feb: +3.7% YoY). Total leading loan indicators were weaker for the month. Meanwhile, foreign selling of local bonds and equities continued during the month due to cautious sentiment amid Covid-19 concerns.

DATA HIGHLIGHTS

Monetary indicators were mixed in Mar as narrow money supply (M1) expanded (+7.9% YoY; Feb: +5.2% YoY) while broad money supply (M3) growth steadied (+3.7% YoY; Feb: +3.7% YoY). Reserve money posted a sharp contraction (-15.7% YoY; Feb: +0.4% YoY) following the reduction in SRR ratio to 2.00% during the month. Meanwhile, total leading loan indicators were weaker in Mar, reflected by decline in loan applications (-9.8% YoY; Feb: +40.7% YoY), approvals (-22.5% YoY; Feb: +23.2% YoY) and disbursements (-5.2% YoY; Feb: +13.2% YoY).

Deposits growth eased slightly to +2.7% YoY (Feb: +2.8% YoY) as the decline in business deposits (-1.7% YoY; Feb: -1.1% YoY) and slower growth in foreign deposits (+6.2% YoY; Feb: +10.5% YoY) offset the pickup in household deposits (+5.3% YoY; Feb: +5.0% YoY).

The household loan-deposit gap narrowed amid a rise in household deposits (+0.9%; Feb: +0.4%) and fall in household loans (-0.3%; Feb: 0%) on a monthly basis. On a yearly basis, household deposits grew +5.3% YoY (Feb: +5.0% YoY) while household loans moderated to +3.7% YoY (Feb: +4.0% YoY), mainly due to higher loan repayments for purchase of securities.

Total loans growth recorded an uptick (+4.0% YoY; Feb: +3.9% YoY), driven by higher business loans (+4.2% YoY; Feb: +3.6% YoY), especially in the manufacturing and transport sectors which offset the moderation in household loans (+3.7% YoY; Feb: +4.0% YoY) due to repayment for the purchase of securities. Meanwhile, gross issuance of corporate bonds fell to RM7.0bn (Feb: RM10.6bn).

Loan applications declined by -9.8% YoY (Feb: +40.7% YoY) due to lower applications in household sector (-18.1% YoY; Feb: +32.8% YoY) and sharp slowdown in business sector (+0.4% YoY; Feb: +51.5% YoY). Loan approvals also declined (-22.5% YoY; Feb: +23.2% YoY), owing to lower approvals in both household (-23.2% YoY; Feb: +16.8% YoY) and business sector (-21.8% YoY; Feb: +31.3% YoY), particularly in the wholesale & retail trade, and restaurants & hotels sector (-38.4% YoY; Feb: -5.3% YoY).

Foreign selling of bonds and equities extended in Mar to -RM17.8bn (Feb: -RM9.9bn), the highest monthly outflow since May 2018. Foreigners reduced bond and equity holdings by -RM12.3bn (Feb: -RM8.0bn) and -RM5.5bn (Feb: -RM-1.9bn) respectively, in tandem with the withdrawal of capital flows from emerging markets amid Covid-19 concerns.

HLIB’s VIEW

Leading loan indicators slowed in 1Q20, reflected by deceleration in loan applications to +1.4% YoY (4Q19: +11.1% YoY). This indicates weaker economic prospects in 2Q20. In addition, the deteriorating economic conditions will lead households and businesses to further cut back on their investment plans especially on big-ticket items. Following weaker global and domestic growth outlook, we maintain our expectation for GDP to contract in 2020 (-6.0% YoY; 2019: +4.3% YoY).

Source: Hong Leong Investment Bank Research - 14 May 2020