Monetary indicators strengthened in Apr as both narrow money supply (M1) and broad money supply (M3) expanded by +9.6% YoY (Mar: +7.9% YoY) and +4.4% YoY (Mar: +3.7% YoY) respectively. Meanwhile, total leading loan indicators deteriorated significantly during the month. Foreign selling of local bonds and equities continued, albeit at a slower pace amid cautious investor sentiment.

DATA HIGHLIGHTS

Monetary indicators strengthened in Apr. Narrow money supply (M1) expanded by +9.6% YoY (Mar: +7.9% YoY). Broad money supply (M3) grew +4.4% YoY (Mar: +3.7% YoY). The increase was driven by double digit rise in currency in circulation, saving deposits and foreign currency deposits. Reserve money continued to decline at a slightly slower pace (-13.9% YoY; Mar: -15.7% YoY) due to reduction in SRR in Mar. Meanwhile, total leading loan indicators deteriorated significantly, reflected by double-digit contractions in loan applications (-41.4% YoY; Mar: -9.8% YoY), approvals (-48.4% YoY; Mar: -22.5% YoY) and disbursements (-28.1% YoY; Mar: - 5.2% YoY).

Deposits growth picked up (+2.8% YoY; Mar: +2.7% YoY), aided by higher household deposits (+6.2% YoY; Mar: +5.3% YoY) which offset slower foreign deposits (+3.0% YoY; Mar: +6.2% YoY) and decline in business deposits (-1.6% YoY; Mar: -1.7% YoY).

On a monthly basis, the household loan-deposit gap narrowed as household deposits grew +1.7% (Mar: +0.9%) while household loans saw a very marginal decline (- 0.03%; Mar: -0.3%). On a yearly basis, household deposits accelerated to +6.2% YoY (Mar: +5.3% YoY). Household loans eased to +3.3% YoY (Mar: +3.7% YoY).

Total loans growth sustained at +4.0% YoY (Mar: +4.0% YoY), supported by higher business loans growth (+4.7% YoY; Mar: +4.2% YoY) amid steeper decline in repayments relative to disbursements. This offset the moderation in household loans (+3.3% YoY; Mar: +3.7% YoY) as the contraction in disbursements outpaced repayments. According to BNM, 90-95% household and businesses adopted the loan moratorium measure, which led to contraction in loan repayments. Meanwhile, gross issuance of corporate bonds fell to RM3.1bn (Mar: RM7.0bn). Loan applications sank by -41.4% YoY (Mar: -9.8% YoY) owing to lower household (- 74.2% YoY; Mar: -18.1% YoY) and business loan applications (-6.7% YoY; Mar: +0.4% YoY). As consumers held back on their purchases during the MCO, loan applications for passenger cars saw a sharp drop of -89.3% YoY (Mar: -9.9% YoY). Applications for personal use (-70.3% YoY; Mar: -11.3% YoY) and credit cards (- 65.2% YoY; Mar: -12.4% YoY) also saw large contractions. For businesses, sharp contraction in loan applications was most prevalent in manufacturing, construction and real estate sectors. Loan approvals also sank (-48.4% YoY; Mar: -22.5% YoY). Foreign selling of bonds and equities continued, but at a slower pace in Apr. Foreign outflows amounted to -RM1.9bn (Mar: -RM12.3bn) from the local bond market and - RM2.7bn (Mar: -RM5.5bn) for equities as cautious sentiment among investors remain.

HLIB’s VIEW

The decline in loan applications and surge in saving deposits signal that consumers and business are wary of increasing spending in this environment. Following weak and uncertain global and domestic growth outlook, we maintain our expectation for BNM to reduce OPR by another 25bps in 2H20.

Source: Hong Leong Investment Bank Research - 8 Jun 2020